That’s 17% in a little over 50 hours. It’s interesting to track the drop of the rial from one hour to the next during an amzing day. I’m usuing timed reports from Enduring America to show the stunning drop:
0700 GMT: In September, the Central Bank was struggling to prevent it crossing the symbolic marker of 13000:1. This morning, the rial stands at 16050:1.
0720 GMT: Parliament’s Article 90 Commission documents an example of Government manipulation of the economy and its budgetary figures. The Commission claims that the Government, instead of transferring 500 billion Toman (about $320 million) in oil revenues to the Treasury, used the money for gasoline imports. The Government then sold the gasoline and, benefitting from the higher prices under subsidy cuts, made a “profit” of 70 billion Toman (about $45 million).
The “profit” was put in the Treasury but the Government never deposited the original oil revenue of $320 million. The outcome? The Government in effect grabbed almost $300 million of funds without making any declaration.
1005 GMT:The Iranian rial, which feel more than 5% on Sunday (see 0700 GMT), has slid another 2% this morning. It is now 16400:1 vs. the US dollar.
1420 GMT: Back from a holiday break to find the Iranian rial has plummeted further against the US dollar. It has dropped more than 10% in hours, now standing at 17800:1. On Sunday morning, it was 15200:1.
1520 GMT: Currency Watch. Mehr reports that the Central Bank is meeting with economists over the currency crisis.
The rial has recovered slightly, after its sharp fall today, to 17400:1 against the US dollar.
***
SOME INTERESTING TWEETS FROM THOMAS ERDBRINK OF THE WASHINGTON POST
ThomasErdbrink Thomas Erdbrink
Iran has a yearly brain drain of 150.000 students, how will parents support them now? One comment: “My son must return if this continues.”
ThomasErdbrink Thomas Erdbrink
I’m not hearing people blaming the west for #Iran #Rial crash, which is caused by mix of US designed sanctions an bad economic policies
ThomasErdbrink Thomas Erdbrink
@jrezaian Importers of electronics and daily commodities are selling products on hourly rates or not selling at all #iran
ThomasErdbrink Thomas Erdbrink
#iran rial stabilized to 1700: 1$. #Iran, some friends: “the war has started”, “Shame on them!”, “I’m studying abroad, what should i do?”
ThomasErdbrink Thomas Erdbrink
Based on recent #iran #rial hikes rates will now stabilize or even gain, but no solution in sight, so further drop against $ very possible
ThomasErdbrink Thomas Erdbrink
@jrezaian its brutal, people tell me. Those with money on the bank just saw it evaporate #iran
Thomas Erdbrinkquotes a steel trader in Tehran: “It’s ugly. Everybody wants to buy steel just to have something that will keep its value.”
As well as the decline in the Iranian currency, falling 40% in four months and 17% in the last two days (“WOW!” adds FG), gold prices are rising despite the decline in the global market. Gold coin in Tehran now sells for 655,000 Toman (about $405).
1450 GMT: One of the groups that will be hit particularly hard by the plummet in the Iranian currency is families with children studying abroad. Thomas Erdbrink offers one quote, “My son must return if this continues.”
1510 GMT: Economy Watch. Another note amid the currency crisis — Asr-e Iran claims that, as Iranians look to put their funds in something other than the Iranian rial, property prices in Tehran have risen 20% in recent weeks.
ThomasErdbrink Thomas Erdbrink
#iran rial stabilized to 1700: 1$. #Iran, some friends: “the war has started”, “Shame on them!”, “I’m studying abroad, what should i do?”
ThomasErdbrink Thomas Erdbrink
Based on recent #iran #rial hikes rates will now stabilize or even gain, but no solution in sight, so further drop against $ very possible
ThomasErdbrink Thomas Erdbrink
@jrezaian its brutal, people tell me. Those with money on the bank just saw it evaporate #iran
ThomasErdbrink Thomas Erdbrink
I dont see #Iran government as benefiting from Rial crash, the currency lost around 35 percent since September, ppl trust is completely gone
LINK:
http://twitter.com/ThomasErdbrink
FG ON HYPERINFLATION:
(PLEASE PARDON THE ODD INDENTATIONS ABOVE AND THE LACK OF PARAGRAPHS BELOW WHICH MAKE THIS POST HARD TO READ. I HAD PARAGRAPHS BUT HITTING “ENTER” DOESN’T FIX THE PROBLEM IN PREVIEW MODE SO I’VE GIVEN UP. IT’S A PROBLEM I’VE HAD BEFORE) :
I wrote about the hyperinflation danger in a post some time back and suggested readers might look up online”hyperinflation/Germany/1920’s. Wikipedia might be a good place. You can see some of the same panic-stricken behavior here. Hyperinflation was an experience so devastating that it has made Germany extremely cautious ever since in its economic policies and which also helped bring down the Weimar Republic, which was replaced by the Nazis.
At that time, some readers wrote that some of the problem may be intentional and involve manipulation of the currency by Ahmadinejad who has done it before and needs election bribe money. In fact, you see an example above of how that works. Readers also also pointed to Iran’s vast income from high oil prices.
Even so, Ahmadinejad is playing with fire. Human psychology plays a huge part. People have no more faith in the Islamic Republic’s economic policies than they have in its elections and its justice system. Lack of trust and confidence in the Islamic Republic is weakening everything. When it comes to hyperinflation, widespread panic isn’t easy to control. Its political effect will be to reduce popular support for the government to even lower levels if that’s possible and it will hit some insiders hard (the rest will save the gold for themselves and let the people sink).
At some point the situation begins to resemble the game of musical chairs in which there is always once seat less than the number of players. Music plays and when it stops everyone tries to get a seat. The person who doesn’t is “out.” Then the music starts again. Similarly when no NO ONE WANTS TO GET STUCK with a deutsch mark or rial (the one who does being “out” or “the loser”) so they’ll take anything of value–gold, steel a bar of soap. As people run to the store to buy while there money is still good, this panic accelerates inflation. Storeowners may shut down or insist on something other than the local currency.
I recall how false rumors of a toilet paper shortage some years ago caused toilet paper prices to double or triple. Who wants to run out of toilet paper? You’d pass a store with a sign, “We have toilet paper!” and see roles of it on prominent display inside at a high price.
PS–Don’t forget that if economic crisis forces some students to return home, they may be targeted by the regime for past demonstrations. Police state security forces may be awaiting many of them at the airport. Having just come back from countries with real freedoms they’ll find it hard to adjust to the dictatorship at home in any case.
ALSO OF INTEREST:
Iran seeking to expand influence in Latin America:
