News ID: 110803
Published: 0754 GMT February 02, 2015

Best approach to regulate forex market

Best approach to regulate  forex market

By Mohammad Khoshchehreh

Decisions made to regulate the foreign exchange market are crucial.

Foreign exchange is not only a strategic issue in Iran's economy, but also a variable impacting political, trade and business sectors. Hence, a holistic approach is required to rein in the forex market.

If we likened Iran's economy to an orchestra, foreign exchange would serve as a musical instrument that must be concordant with counterparts. The music would be melodious if the leader of the orchestra and all musical instruments play in harmony.

Unless all economic variables are taken into consideration, efforts to regulate the forex market will not bear fruit.

Besides, foreign currency is linked with petrodollars, which should not be allowed to overshadow the forex market.

The Central Bank of Iran (CBI) recently adopted policies to regulate the forex market, which deserves praise.

The CBI has decided to confront unauthorized foreign exchange bureaus and declare forex rates through the official channel.

Even though such plans are useful, the CBI should also regard factors that influence the rise in the value of foreign currencies.

Decisions to handle the forex market in a rational manner will help stabilize it.

Efforts should focus on unreasonable demand for forex. A fresh demand for foreign currency is often fueled by psychological reasons.

The CBI can keep a tight rein on spiraling demand by rationing forex injection or banning its trade through unofficial channels.

Once the inflation rate goes up, some people rush to the forex market to exchange the national currency, the rial, for hard currencies such as US dollar to maintain the value of their assets. This was evident under the former administration, although the incumbent government managed to curb the forex market rush since taking office in August 2013.

The administration must curtail false demand for foreign exchange and keep a grip on factors that give rise to a forex crisis.

If the CBI monitors the performance of foreign exchange bureaus, but turns a blind eye to other economic factors that create turmoil in the forex market, it will fail to stabilize the market in the long run. This is because such a policy will only serve as a painkiller that relieves pain for a short period.

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