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Why Iran's currency dropped to worst low in two decades

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Potential dent in Iran's oil revenues

Iran's Central Bank, which serves as a clearinghouse for nearly all oil and gas payments in Iran, has faced increasing difficulty over the past year in facilitating foreign currency transactions abroad.

Monetary policy inside the Islamic Republic is facilitated by buying and selling currencies through a network of money-exchange dealers throughout Iran, Europe and the Middle East, allowing Tehran to maintain the rial within a range determined by the Central Bank. By hindering the National Iranian Oil Company's ability to transfer oil revenues back to Tehran and by reducing the Central Bank's access to foreign exchange reserves held overseas, US Treasury sanctions have therefore limited the Central Bank's ability to control the depreciation of Iran's currency. 

Last year, the Central Bank put a cap of $2,000 on the amount of currency private Iranian citizens looking to travel abroad could take out of government banks at the official rate of 11,180. Any foreign currency purchases beyond the Central Bank's $2,000 limit for private citizens must be made at the higher market rate for Iran's currency.

When the latest sanctions signed into law by President Obama are implemented, they could theoretically target the smaller, local banks in US-allied countries such as the United Arab Emirates, Malaysia, or Turkey that Iran has had to use to transfer cash back to Tehran.

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