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What's causing Iran's currency to collapse? (+video)

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The rial's slide suggested the Western sanctions were doing serious damage to the country's economy.

On Sunday, Israeli Finance Minister Yuval Steinitz said Iran's economy was "on the verge of collapse".

By freezing Iran out of the global banking system, sanctions have made it hard for Tehran to obtain payment for its oil exports. Iranians have responded by rushing to change their savings into hard currency, fuelling the rial's slide.

"This is going to cause a shutdown in transactions in Iran. All the main distributors of electronics and household items will be concerned about trading - they'll want to know where the bottom is and how long it will continue," said Mehrdad Emadi, an Iranian-born economic adviser to the European Union who is based in Britain.

With Iran's official inflation rate running at around 25 percent, the rial's weakness threatens to increase the costs of industrial companies, worsening a recent spate of job losses in addition to reducing living standards.

Sanctions impact

But Ahmadinejad insisted on Tuesday that the impact of the sanctions had been manageable. Iran's imports totalled $26 billion in the first half of this year, down only moderately from $29 billion in the same period last year, he said.

"The central bank has provided all the currency for these imports," he said.

Many businessmen and ordinary citizens in Iran say the government is at least partly to blame for the currency crisis, and Ahmadinejad has been criticised for it by political enemies in parliament.

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