Iran Currency Crisis

Presented by:Anil Nandyala | Arunachalam Ramanathan | Jigar Kotak | Richa Daruka | Sonam Keshri

AGENDAO Economic Scenario - IranO Sanctions on Iran by UN & EUO Reasons for imposing sanctionsO Post the sanctions

O Fiscal Deficit – IranO Circular Flow of MoneyO Exchange Rate System

O Recommendations by Economists

Economic Scenario - Iran

O Iran possesses O 10% of World’s Oil O 15% of World’s Gas reserves

O Crude oil composes of 90% of exportsO Oil Export

O Contributes 42% of GDPO Employs 31% of labor force

O Currency of Iran: Rial

Sanctions on Iran by UN & EU

Imports:O Ban on the supply of heavy weaponry and nuclear-related technologyO Inspection on cargo to stop Iran's acquisition of illicit materials

Exports:O Ban on Oil exports to US & EU O Block on Iranian arms exportsO Ban on export of key equipment and technology for the refining and

production of natural gas

Others:O Ban on all trade in gold and other precious metals O Prohibition of financial transactions with Iranian banks

Reasons for Imposing Sanctions

O A nuclear-armed Iran would prompt a proliferation cascade in the Middle EastO Stockpile of 20% enriched Uranium

O Moving towards Israel redline for military action

O Not adhering to International Atomic Energy Authority (IAEA)

Post the Sanctions

Fiscal Deficit - IranIran is on the verge of a fiscal deficit. It can be reduced if:O Taxes are increased

O Iran is a export driven economic nation and unemployment has started because of the sanctions. Government couldn’t earn through taxes.

O Funds are borrowed from foreign nationsO SWIFT blocked the Iran banks from the global financing

system

O Money is printedO Iran might go into the state of hyperinflation

SWIFT - Society for Worldwide Interbank Financial Telecommunication

Circular Flow of Money

Exchange Rate SystemO Official Exchange Rate

O Available in limited amounts for students, tourists travelling abroad and importers of essential goods like grain, sugar and medicine

O $1 = 12,260 Rials

O The Non-Reference RateO 2% lower than the black market exhange rateO Available for importers of non-essential goodsO $1 = 25,480 Rials

O Black Market Exchange RateO An illegal exchange which prevails when there is currency

devaluationO Because of speculators and panic in Iran, the public started to

convert Rials into US DollarsO $1 = 33,500 Rials (as on Oct 1,2012)

Recommendation by Economists

O DollarizationO Prevents the state of hyperinflationO Goods and services will be priced in dollarsO US inflation rate will be Iran’s inflation rateO Central Bank of Iran will not be able to implement

any independent monetary policies

Thank You