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Iran's currency: Why did the rial tumble so precipitously? (+video)

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Though what exactly triggered the sudden currency decline is still unclear, some speculate that the Central Bank’s launch last week of a formal currency “exchange center” may have inadvertantly fed the frenzy for dollars. Intended to control fluctuations in the exchange rate, the center allows importers of basic necessities, such as meat, rice, or oil to purchase foreign currency at a “preferential” rate that is actually only slightly below the street rate.  

“The center made it seem like the government is giving up trying to manage the rate, and is allowing the exchange rate to stay at these numbers,” says a veteran Tehran-based analyst, speaking by telephone on condition of anonymity. “It gave the message to the business community that the government does not have the currency to keep up with the market. Now there is panic.”  

The role of US sanctions 

Economic pressure resulting from US Treasury sanctions is widely recognized as a significant force behind the rial’s massive decline. But the blame for Tehran’s deteriorating economy is being resoundingly placed on the Iranian government itself for failing to cushion the country against the impact of sanctions many viewed as inevitable. Much of the criticism is based on the fact that the government seems to have done little to prepare for a situation it must have seen coming.      

Washington sanctions foreign firms that purchase Iranian oil and penalizes banks engaging in financial transactions with the Islamic Republic. It first implemented financial sanctions on Iran in 2006, and four rounds of sanctions by the United Nations Security Council followed. 

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