The Forum for Partners in Iran's Marketplace
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     

January 2019, No. 90


Europe

Importance of Maintaining
Euro for Iran Transactions

By: Mehdi Taqavi, Economist 

The 90-day and 180-day US sanctions were among issues that affected the Iranian economy to some extent in recent months. After withdrawal from the nuclear agreement with Iran known as the Joint Comprehensive Plan of Action (JCPOA), the US president tried to push the European Union member states to join Washington in its anti-Iran sanctions. Even during the UN General Assembly in September, the Trump administration officially warned against any economic cooperation with Iran.

Regarding the decisions made in the last negotiations between Iran and 4+1 group, Europe has formulated a package in support of Iran to ease the effects of the US sanctions, and Iran has moved towards the elimination of the USD and its replacement with euro in its transactions. The US dollar is a powerful international currency, but today the euro is also gaining strength. Despite pressures by Trump, European countries continue to deal in the EU currency with Iran and are set to buy a certain amount of oil from Iran. A logical relationship with the EU could lead to a continued decline in the rate of foreign exchange. All countries of the world, including China, Japan, Korea, Russia, India, etc. conduct their transactions in euro easily.

By using the powerful euro Iran can manage its trading conditions. By using monetary and financial instruments, we should prevent the exchange rate from rising again. Iran is an importer of raw materials and goods. Hard currency at reasonable and real rates will make imports cheaper and increase the Central Bank of Iranís reserves. The traditional non-oil exports of Iran, ranging from carpets and nuts have been harmed due to the policy of insisting on stabilization of the exchange rate in recent years. Because the minimum cost of  producing these items has increased significantly.

Inflationary pressures and its compensation from the rising price of the foreign currency had forced exporters to effectively lose their competitive ability. Although under the Ahmadinejad administration a forex leap occurred that could be used as an opportunity to boost exports, it was lost because Ahmadinejad had no plans and overlooked the 40 percent inflation impact.

In order to increase the rate of economic growth, reduce unemployment and increase national income, the government should consider exports and by adopting appropriate foreign exchange and trade policies, boost the competitiveness of exporters in foreign markets and by setting standards and laboratories and encouraging investment in suitable packaging for export products, increase the share of non-oil exports from total exports. Insistence on stabilizing the exchange rate with state intervention is an act without economic logic; in the meantime, instability and its daily growth will destabilize any kind of business.

Considering that domestic production does not meet demand and raw materials and machinery and capital goods are imported an increase in exchange rates would not reduce imports and even increase exports. The economic conditions of Iran must be taken into account in this regard. The shock of eliminating the US dollar is definitely manageable if the European Union cooperates and this is the responsibility of the private sector of the economy and the diplomatic machine to keep the corridor open.

 

Subscribe to
IRAN INTERNATIONAL

CURRENT ISSUE
   
  January 2019
No. 90