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Mon 16 Jan 2012 07:58 AM

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Iran threatens dollar touts in bid to stop rial’s slide

Blackmarket traders threatened with arrest, dollar dealers told to undercut market rate

Iran threatens dollar touts in bid to stop rial’s slide
Iranians flock to trade in rials in Tehrans main shopping district

Iranian authorities will arrest people trading foreign
currencies on the black market, media reported on Sunday, in the latest attempt
to stop a slide in the currency
that has, at least in part, been sparked by new
Western economic sanctions.

"Street dealers will be prosecuted and those who carry
foreign currencies without an invoice will be arrested as of Sunday," the
Ebtekar daily newspaper quoted a deputy central bank governor, Ebrahim
Darvishi, as saying.

The Iranian rial fell to a record low against the dollar
this month after U.S. President Barack Obama signed a bill imposing sanctions on
the Central Bank of Iran, with Iranians rushing to acquire increasingly scarce
hard currencies.

Tehran has played down the sanctions' impact and said the
state has no shortage of petrodollars. Officials who blame speculators for
pushing up the price of dollars hope the new measures will stop Iranians hoping
to make a quick profit from the rial's decline.

"The possesion of foreign currencies in the absence of
an invoice from official outlets is illegal and will be punishable by a fine
amounting to double the amount," Darvishi said.

Exchange offices in Tehran contacted by Reuters said they
had halted the sale of dollars completely as the central bank had instructed
them to sell at no more than 14,000 rials.

They were offering to buy dollars at 13,900 rials, an
unattractive offer after two weeks during which the price of dollars on the
open market has been between 16,000 and 17,000 rials.

The financial website Mesghal, which many Iranians use to
find real market rates for currencies, has been blocked by the government's
extensive Internet filter for several days.

Accessible using a virtual private network (VPN) connection,
Mesghal put the price of dollars on Sunday at 16,950 rials, 50 percent more
than the central bank's official "reference rate" of 11,280 rials.

Iranian media reported that some street dealers were still
doing business but others had taken heed of the arrest warning and were trading
foreign currency in private.

Analysts believe the sharp drop in the rial's value is
linked to the new sanctions, raising inflation and fears of a possible military
strike by the United States and Israel.

Washington hopes the new sanctions will push Iran into
curbing its nuclear ambitions which it believes are aimed at making a bomb.
Tehran says its work is entirely peaceful and nothing will stop its pursuit of
atomic technology.

"The main reasons behind this instability in the market
are the Western sanctions imposed on the country's economy and especially those
on oil and also the military threats against the Islamic state," said
political analyst Mohammad Shamas, who teaches at Tehran University.

"The central bank's latest move might help to stabilise
the market but it cannot solve the main problems behind this instability,"
Shamas said.

Another shift in monetary policy, awaiting the approval of
President Mahmoud Ahmadinejad, might have more impact.

The central bank's monetary council said last week it
planned to raise interest rates on bank deposits as a way of mopping up
liquidity. That would reverse a decision taken in April to lower rates to
below-inflation levels - a measure that caused a rush for hard currency and
gold and weakened the rial.

Ahmadinejad, who was on his way back from a tour of Latin
, has previously opposed an increase in interest rates, putting him at
odds with Central Bank Governor Mahmoud Bahmani.

The currency problem is a major political headache for
Ahmadinejad ahead of March 2 parliamentary elections, not least because it
could be portrayed as a consequence of the sanctions he has long said would not
hurt the economy and poses questions about his economic policies.

Arabian Business digital magazine: read the latest edition online