Protests over the plunging Iranian currency erupted on Wednesday around Tehran’s main bazaar, the country’s commercial hub, as escalating economic woes become a rising political challenge.
The demonstrations marked the first time in three decades that the conservative merchant classes, a backbone of the Islamic Revolution in 1979, have publicly turned against the government.
When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010. This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the rial, over the course of a single weekend (8-10 September 2012). The free-fall has continued since then. On 2 October 2012, the black-market exchange rate reached 35,000 IRR/USD – a rate which reflects a 65% decline in the rial, relative to the U.S. dollar.
Move over Zimbabwe, Iran is the new poster child of hyperinflation.
3 Responses to “Was Hyperinflation the Intended Outcome?”
The currency devaluation/hyperinflation Iran is experiencing must have been part of the analysis behind the U.S. governments increased sanctions. While they could not have predicted the extent or timing, the outcome was certainly in the cards. Restricting Iran's ability to export oil leads to a restriction of foreign currency available in the Iranian economy. Competition for dollars among banks and individuals adds to scarcity and pressures rial. Confidence is undermined and the black market rial rate begins spinning out of control. Iranian government oil revenues are constrained, so the central bank – with no capacity to provide dollars to the market – is forced to exacerbate the problem by printing money to help pay government bills.
The real problem here is what will be accomplished and who is suffering. The Iranian government and revolutionary guards are able to control resources even in dire circumstances, while ordinary people see the value of their savings collapse. The resulting political turmoil, while welcome, has a highly uncertain outcome. U.S. authorities must have been able to game these scenarios out, but one hopes they also have some plan to alleviate suffering among those Iranians they expect to be anti-regime.
"Sanctions" historically never work and as a form of "siege" are against international law…
Will the US ever learn?
It's been a great success in Zimbabwe…