Iran’s currency crisis: what the rial does (and does not) tell us
The recent nationwide protests in Iran are the result of an accumulation of grievances, increasingly focused on what is commonly described as the “loss of value of the national currency.” This phrase is a familiar everyday lament among Iranians, who often equate the value of the rial—measured in U.S. dollars—with living standards. In doing so, they typically focus on the free-market exchange rate. Although this is a narrow market, it produces the most dramatic signal. The bulk of foreign exchange transactions take place at lower rates, but access to them is limited. The free-market rate, now around 1.3 million rials per dollar and averaging just under one million in the past month (see the blue line in Figure 1, left axis), is roughly 100 times its level when Obama-era sanctions took effect in late 2011.
(more…)The real depreciation of the rial under sanctions
In my previous post I argued that sanctions and the multiple devaluations they have caused have increased the competitiveness of the Iranian economy. This means that inflation did not increase enough to undo a series of devaluations since 2011, so that the rial is cheaper in real terms, not just nominal terms. If this is the case, removal of financial sanctions confer important benefits on Iran, perhaps exceeding that of the release of frozen funds or more oil sales to China. Below I present the evidence of rial’s devaluation in real terms and leave the question of its potential for growth of non-oil exports to another time.
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Tyranny of numbers 
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