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Iran's break with the dollar is easier said than done

Section: Daily Dispatches

By Maziar Motamedi
Al-Monitor, Washington, D.C.
Friday, March 16, 2018

A little over two weeks ago Iran eliminated another function of the U.S. dollar in its internal workings in a move positioned amid yearslong plans to reduce dependency on the greenback. The consequences will be manifold and interconnected, but there are discrepancies in views concerning what will happen as a result among experts and officials.

On Feb. 28, the Ministry of Industry, Mines, and Trade announced by way of a directive that all traders are henceforth barred from registering their import orders in US dollars. The abrupt directive that is effective immediately was put into motion per a government request conveyed through a letter penned by Central Bank of Iran head Valiollah Seif.

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In the missive, Seif argued that since Iran's banking system has no access to dollar transactions because of decades-long sanctions, using the currency in imports translates into having to employ a network of foreign exchange bureaus instead of banks while also going against the country's policy of "completely removing the dollar" from its international business dealings. The latter is indeed a policy that Iran is pursuing on several fronts.

For instance, Tehran is actively seeking bilateral or multilateral currency swap deals with its chief trade partners and has already one in place with Turkey. Further, it previously announced a plan to halt the use of U.S. dollars as the currency of choice in financial and foreign exchange reports from the beginning of the current Iranian year (ending March 20). But that plan ended up being postponed because a sudden break with the greenback was not deemed feasible as oil revenues are priced in US dollars, though it remains on the CBI's agenda.

Going back to the latest manifestation of the Hassan Rouhani administration's policy of doing away with the greenback, shortly after the announcement of the ban on imports in dollars, Mehdi Kasraei-Pour, the central bank's deputy for foreign exchange policies and regulations, asserted that it will have "no impact" on the country's imports. "Importers must only ask their foreign counterparts to offer their pro-forma invoices in other currencies and use alternative currencies such as the euro for their purchases," he said.

Mojtaba Khosrotaj, head of the Trade Promotion Organization, also said the directive "shouldn't create any serious problems" considering the type of imported goods and Iran’s trade partners.

But much of the private sector -- whose players bear the brunt of the measure -- holds a different opinion. ...

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