Iran’s currency has plunged to record lows, posing a new challenge for the country’s clerical leadership following nationwide protests late last year.
The Iranian rial has lost a fifth of its value since last week, hitting a low of 601,500 to the U.S. dollar on Sunday. The slide has made the import of vital goods far more expensive and sapped the purchasing power of ordinary Iranians.
Iranians are rushing to buy dollars, driven by fears that crippling U.S. sanctions are likely to remain as talks to revive the 2015 nuclear deal collapse. A U.S. money-laundering crackdown in neighboring Iraq has also sharply curtailed the supply of dollars being smuggled into Iran, prompting panic buying, analysts say.
Standing in line outside a currency shop in Tehran’s Ferdowsi square, Nima Vazeni said he was trying to buy dollars, like many other Iranians.
“I saw people are buying so I decided to do so too because the rial is losing value,” said the 32-year-old electrician. “The dollar’s rate goes higher and higher, and the price of everything follows.”The currency plunge marks another economic blow for Iranians who were already struggling with a deepening economic crisis, high unemployment and the rising cost of living. Urban inflation hit 52.7% in January, up 2.1 percentage points from December, according to Iranian government statistics.
“Even milk becomes more expensive and when you ask, they answer, ‘it’s because of the dollar’s rate hike today,’” said a Tehran woman in line to buy dollars Tuesday. “Chicken and beef has become a dream for us. We buy dollars to prevent our savings’ value going down and down.”
The currency woes pose a fresh test to the stability of the ruling establishment following widespread unrest that broke out in September following the death in police custody of a 22-year-old woman. Demands for more rights broadened into calls for an overthrow of the Islamic Republic, which was founded after the revolution in 1979.
Political analysts say the rising cost of living could trigger new unrest, but Iranians may believe that paying bills and preserving their savings amid currency fluctuations is more important than protesting a government that has repeatedly shown its ability to weather such demonstrations.
Calming the market and easing the demand for dollars has proven challenging for Iran’s government, which has limited foreign exchange reserves to intervene in currency markets due to sanctions. Some traders describe a frantic market, as sellers have unloaded rials in recent days, overwhelming moves by the government to support the currency.
The Central Bank of Iran said Feb. 21 that it was creating a “currency and gold exchange center” to manage private currency exchange houses, according to Iranian state media. Mohammad Reza Farzin, the bank’s governor, said on his Twitter account that the center would set the price of foreign currencies and currency costs based on the country’s reserves.
On Saturday, as the rial continued to fall, the central bank said it was easing rules limiting private exchange shops from selling dollars and hard currencies. But it also announced that foreign travelers could buy no more than $500 a trip at the official rate.
Iran’s official exchange rate is 42,000 rials to the dollar, far lower than the unofficial rate that most Iranians have to use. On Wednesday, the rate had strengthened slightly, reaching 549,000 rials to the dollar, according to Bonbast, a website that tracks Iran’s unofficial exchange rates. Iranians were still lined up at exchange shops in Tehran, hoping to buy more greenbacks.
The rial has repeatedly hit record lows against the dollar since the Trump administration in 2018 pulled out of the multilateral nuclear deal and restored strict sanctions on Iran. The decline eased when the Biden administration took office in 2021, a sign that many Iranians were optimistic about reviving the nuclear deal and easing sanctions, analysts said.
But the depreciation resumed when the antigovernment protests broke out last year and accelerated in December after U.S. officials said Iran’s crackdown on the demonstrators had all but extinguished near-term prospects for resuming talks on restoring the nuclear deal and the easing of sanctions.
“Everybody was thinking the JCPOA will be back and the dollar will plunge,” said Hadi Assiai, a 36-year-old Tehran currency trader, referring to the Joint Comprehensive Plan of Action, as the nuclear deal is formally called. “I myself saw that my money in the bank, my savings, was depreciated frequently by 5%. The money was becoming worthless. So I changed it to keep its value.”
“Until they resolve the nuclear issues, the depreciation of the rial is likely to continue,” said Saeed Ghasseminejad, the senior Iran economic adviser for the Foundation for Defense of Democracies, a Washington group that advocates overthrowing the Iranian regime.
Another factor contributing to the rial’s fall has been new measures by the U.S. Treasury Department, the Federal Reserve Bank of New York and the Central Bank of Iraq aimed at halting the siphoning of dollars from Iraq to Iran and other heavily sanctioned Middle East countries, analysts said.
For years, Iran has acquired dollars through the Iraqi banking system—both paper dollars, which are transported to Iran by vehicle and electronic dollar transfers to Iranian-linked accounts, according to U.S. officials. Since November, the Fed has been blocking as much as 80% of the Iraqi dollar transactions, cutting off an illicit source of dollars for Iran, said Esfandyar Batmanghelidj, the chief executive of the Bourse and Bazaar Foundation, a London-based think tank.
“There are fewer physical dollars coming in from Iraq. There’s less of a supply,” he said. “But the bigger driver is that the Iranian public feels the economic outlook is darkening.”