TEHRAN (Iran News) In recent days, text messages have reportedly been sent to exporters giving them just five days to settle outstanding foreign exchange commitments. According to reports, these notifications have been issued over the past 10 to 15 days and apply even to exporters with relatively small outstanding amounts, in some cases as little as $30,000.

Speaking to ISNA, Mohammad Lahouti said the issue of returning export earnings to the country’s economic cycle has been under discussion since 2018, when new foreign exchange regulations were introduced. Although various institutions have examined the matter and offered commentary, he argued that a comprehensive and effective resolution has yet to be achieved.

Lahouti categorized export activity into three main groups to clarify the situation. The first group consists of large enterprises, primarily state-owned or quasi-state entities. In these cases, he noted, the government has the ability to manage and determine the status of foreign currency returns through internal mechanisms and agreements.

The second group includes small and medium-sized private-sector exporters and what he described as “real economic actors.” According to Lahouti, a significant number of these exporters have already fulfilled between 60 and 70 percent of their foreign exchange obligations. However, a portion—sometimes 20 to 30 percent or more—remains unsettled.

The third group involves so-called “single-use” or one-year commercial cards, through which substantial volumes of exports were conducted, but where the resulting foreign currency did not return to the formal economic cycle.

Lahouti emphasized that judicial and supervisory authorities were justified in addressing violations in the third category. He noted that since 2018, exporters with outstanding currency obligations have received notifications from anti-smuggling authorities requiring settlement. In the case of state-affiliated companies, he reiterated, the government can resolve issues based on their particular structures.

However, he stressed that the primary concern lies with the second group—active, legitimate exporters who continue to operate production units and engage in export and import activities. For these businesses, he argued, the three- to five-day deadlines imposed via text messages are impractical.

“Given the country’s sanctions environment and the complexities involved in transferring foreign currency, such short timeframes are simply not feasible,” Lahouti said.

He explained that exporters often must rely on specialized and sometimes complicated channels to transfer funds or physically bring banknotes into the country. These processes are time-consuming and cannot realistically be completed within a few days.

Reflecting the position of the private sector and chambers of commerce, Lahouti called for a more flexible approach toward genuine exporters. While expressing full support for legal action against offenders and those misusing commercial cards, he proposed granting at least a three-month deadline to legitimate exporters with partial outstanding obligations.

Such an extension, he argued, would restore confidence within the export community and demonstrate that the government and judiciary stand alongside law-abiding businesses. In turn, exporters would be better positioned to return foreign currency earnings to the national economy through the most efficient available channels.

Lahouti concluded by reiterating that while enforcement against abuse is necessary, policymakers must differentiate between violators and active exporters who are committed to fulfilling their obligations but require a realistic timeframe to do so.

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TEHRAN (Iran News) For better understanding, the table below shows the main components of the government’s general budget:

General government budget

General resources: 5,220 billion new rials

Dedicated revenues of ministries: 734 billion new rials. Of course, the above figures pertain only to the general government budget and do not include the budgets of state-owned companies or the collective expenditure section.

Key and analytical points about the budget

Drafting the budget on the basis of the new currency unit is accompanied by significant policy changes:

Contractionary policy: Analyses show that this budget has a contractionary nature, such that the growth of its expenditures relative to high inflation is estimated to be very low (around 5 percent).

Impact on livelihoods: It is predicted that the 20 percent increase in the salaries of employees and retirees will not be in line with current and forecast inflation (above 50 percent) and will undoubtedly lead to a reduction in their purchasing power.

Tax changes: A significant increase in tax revenues (around 63 percent) and an increase in the value-added tax rate to 12 percent could have an inflationary effect on the prices of goods and services.

Removal of the preferential exchange rate: In the new budget, the preferential exchange rate of 28,500 tomans has been removed, and the exchange rate used for customs calculations has been increased (for example, each euro has been calculated as equivalent to 103 new rials).

Public reaction and security concerns: Many people and experts consider the removal of zeros from the currency, without fundamentally controlling inflation, to be a superficial measure and a kind of amusement meant to occupy people’s minds, and they are concerned that without essential economic reforms, this action will be repeated again and again in the future.

Now, with the government’s decision, it is expected that next year monetary and financial markets will enter a new space, and newly printed banknotes will gradually be introduced into the market so that, over a five-year process, the new currency unit becomes dominant in the country’s economy.

People’s engagement with inflation, contractionary policy, zero percent growth, and the appearance of the new currency can, to some extent, cause the core issue—namely, the direction in which the economy is moving—to be reviewed in hidden and unspoken layers of the public mind. Woe to behavior in which there is no reflection.

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TEHRAN (Iran News)In economic literature, debts are defined in nominal terms. When you borrow 1,000 dollars, you must repay 1,000 dollars; however, the purchasing power of that 1,000 dollars over time is what matters. This is why inflation and currency devaluation reduce the purchasing power of money. Therefore, when a debt matures, the real value of the money being repaid is lower than the real value of the money that was originally borrowed.

This benefits the debtor (including governments, banks, companies, and individuals) and harms the creditor (such as bondholders, banks, and others).

Today, governments are the largest debtors worldwide. They borrow money from the public and from domestic and foreign institutions by issuing bonds. When a central bank (such as the Federal Reserve or the European Central Bank) implements expansionary monetary policies (money printing, asset purchases, lowering interest rates), it contributes to the creation of inflation. In an inflationary environment, the government receives higher nominal tax revenues (because wages and prices rise), while its debt remains fixed in nominal terms. As a result, the debt-to-GDP ratio (which is the main metric) can improve.

This policy disproportionately harms the poor and those with fixed incomes, because their purchasing power declines, while the assets of shareholders and property owners may retain their nominal value. If this approach becomes entrenched, it can lead to hyperinflation and a complete collapse of trust in the currency (as seen historically in Germany, Zimbabwe, and Venezuela). Moreover, if all countries attempt to artificially devalue their currencies in order to boost exports and reduce their real debt burdens, it can lead to global instability and currency wars. If inflation spirals out of control, central banks are forced to sharply raise interest rates to contain it, which can itself cause recession and increase the cost of servicing new debt.

For this reason, the world’s major central banks (especially the Federal Reserve) adopted extraordinarily expansionary monetary policies, which led to massive increases in their balance sheets. This injection of liquidity into the economy, combined with supply chain disruptions, has fueled part of the current inflation in many countries. Many economists believe that part of the strategy for exiting these massive debt levels is to allow inflation to exceed the interest rate on government bonds (that is, to maintain negative real interest rates). This systematically reduces the burden of debt.

Thus, it can be stated decisively that currency devaluation is one of the historical and indirect tools for reducing the real burden of unpayable debts. However, monetary authorities must understand that this is a double-edged sword and cannot be considered a sustainable “solution.” If left uncontrolled, it can lead to social instability, the destruction of savings, and deeper crises. The sustainable solution for strengthening debt repayment capacity is the creation of economic growth, which balances the value of production volume against liquidity.

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TEHRAN (Iran News) TEHRAN – Minister of Economic Affairs and Finance, Abdolnasser Hemmati, highlighted the detrimental effects of currency suppression on the competitive capabilities of knowledge-based companies in the country. Speaking on December 17, 2023, during a press conference held after the signing ceremony of a memorandum of understanding between the Ministry of Economic Affairs and the Vice Presidency for Science, Technology, and Knowledge-Based Economy, Hemmati emphasized the crucial need to support these innovative enterprises.

According to Hemmati, the primary objective of the memorandum is to bolster and enhance the capabilities of knowledge-based companies so that they can successfully navigate marketing and selling their products in global markets, potentially even engaging in cross-border production.

“This is a significant opportunity amid the current sanctions,” he stated. “By enhancing the export of these products, we can import the necessary goods and components through barter, benefiting our economic landscape.”

Hemmati noted that there has been considerable effort from the Vice Presidency in recent months to facilitate this initiative, expressing optimism about the potential for increasing the exports of domestic knowledge-based products. He stated that this agreement focuses on the micro-scale products of these companies and has the potential to expand to neighboring markets as well.

With neighboring countries boasting imports exceeding $1 trillion, while Iran’s exports to these nations hover around only $27 billion, Hemmati underscored the vast potential for Iranian knowledge-based companies to significantly increase their export levels beyond current figures.

During a visit to the “Iran Made” exhibition, Hemmati observed a high potential for export within the country. He expressed concern regarding one of the significant issues facing companies at the exhibition, namely, the importation of similar foreign products by certain state entities, which undermines the products produced by local firms. He assured that efforts would be made to prevent such occurrences.

A key factor contributing to the challenges faced by local companies stems from currency suppression policies that make imported similar products cheaper, thereby eroding the competitive ability of local firms. Hemmati expressed optimism that recent government decisions regarding a more flexible currency exchange system would mitigate this issue.

“We hope to see a halt in the import of goods that are already being produced by knowledge-based companies in Iran,” he said, emphasizing that the government is committed to supporting local innovation and production.

Hemmati mentioned that the Iranian Foreign Investment Holding Company (IFIC) is actively assisting knowledge-based enterprises, and the ministry is committed to facilitating their operations effectively. He acknowledged queries regarding foreign investments made by IFIC, explaining that these investments are primarily state-to-state collaborations, such as the Iran and Egypt Development Bank, in which Iran holds a 40% stake.

Addressing speculation regarding the suspension of the Privatisation Organisation’s meetings, Hemmati clarified that only the high council sessions had been temporarily paused; regular meetings would be reinstated in the coming week.

Furthermore, he provided updates on the ongoing formulation of the Production Finance Law, stating that related regulations, including its validation guidelines, are nearing completion. Some components of this legislation have already been implemented, such as the financing of production chains backed by available credit documents, which are currently operational.

Hemmati confirmed media reports about a temporary halt in the issuance of business licenses, attributing this situation to concerns raised by certain organizations regarding ambiguities in the process. Nonetheless, he assured that the procedures for reviewing and issuing business licenses would resume shortly as the necessary directives were issued three weeks ago.

In summary, the Minister’s remarks underscore the Iranian government’s recognition of the vital role of knowledge-based companies in driving economic progress, especially under the strain of sanctions and currency stability challenges. As the government aims to mitigate the negative impacts of currency suppression, there is a hopeful outlook for the growth and expansion of local innovations in international markets.

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IRAN NEWS ECONOMIC DESK

TEHRAN – Majlis yesterday passed a bill allowing the government to slash four zeros from the rial, after a sharp fall in the value of the currency.

Under the approved bill, Iran’s national currency will be changed from the rial to the Toman, which is equal to 10,000 rials.

The bill needs to be approved by the Guardian Council before it takes effect.

Iran’s state TV said the Central Bank of Iran will have two years to “pave the ground to change the currency to Toman”.

Addressing to the open session of Majlis in defense of the bill, the governor of Central Bank Abdolnaser Hemmati said that because of the inflation in the past five decades, rial and dinar have lost their stamina and actually toman has replaced them in the society and people use toman in their daily trades and they even equals 50 tomans to 50,000 tomans.

On the cost of destroying old banknotes and printing new ones, he said there are some eight billions of banknotes circulating in the country and five billions of them are banknotes with value less than 2,000 tomans and by this approval and cutting four zeros, the bank can circulate one- and two-toman coins.

Hemmati reiterated that currently the bank destroys one billions of banknotes annually which its annual cost is around 400b tomans.

He reiterated that protecting the reputation of the national currency is very important, adding that currently the gap for changing rial with currencies like dollar and euro is very high. He admitted that the ration between national currency with dollar is 0.000006 which is a very weak one in the world.

Hemmati added that cutting the zeros will revive usage of coins in the country, adding that currently the per capita of banknote in the country is 102 and the figure for the coins is just 26 while the per capita of coins in other countries is three times more than Iran.

He once again reiterated that cutting zeros has no impact on inflation and they are other factors which are crucial in inflation.

Hemmati reiterated that replacing the current banknotes with the new ones will be gradual while both rial and toman will be valid during the transition period.  After that phase, all financial commitments based on the rial will be fulfilled in toman, he stressed.

The idea of fewer zeros has been floated for almost 16 years. The initiative to change the currency was first proposed by the government in August.

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According to the released report, transfer of international funds is one of the challenges of securing imports of raw materials and intermediary goods. “One of the solutions we can offer is to develop bilateral or multilateral monetary agreements with countries that have common import and export principles with our country. Exports and imports can be done with any country without the need for money transfer and only through accounting operations,” the report said.

“Using this method in interactions with China, the United Arab Emirates, Turkey, South Korea, India, Japan and Italy can safeguard at least half of the country’s total foreign trade from sanctions. Of course, as good political relations are needed, this kind of cooperation seems to be a priority with China, Turkey and India,” it added.

“A bilateral monetary treaty has been signed between Iran’s central banks with those in Pakistan and Turkey so far. The Turkish contract has entered into an operational phase and Iran’s Melli Bank has so far opened a number of Letters of Credit, but the issue has been suspended for a long time. Unfortunately, the monetary mechanism of this contract is done via SWIFT thus all the information will be provided to the US Treasury Department. The contract with Pakistan has not entered the operational phase yet,” it continued.

“It is noteworthy that the Bank of China has already signed 41 bilateral currency swap agreements with developed countries such as Switzerland, Canada and the United Kingdom besides less developed and high-inflation countries such as Belarus, Argentina and Nigeria,” it added.

“One of the most important challenges in making these treaties operational is that exporters in each country will prefer to trade in world currencies rather than national one. Therefore, the success of this idea requires providing an appropriate incentive mechanism to lure active presence of business players in this field,” the report concluded.

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