Iran Changes Benchmark Currency From Dollar To Yuan

by Ike Obudulu Posted on August 21st, 2018

Houston, Texas, USA : Iran has removed the US Dollar from its official currency rate reporting platform and replaced it with China’s Yuan in an effort that the media in Tehran say could be a key step toward ditching the greenback in trade.

As of Monday, the Dollar was taken off – a website affiliated to the Central Bank of Iran (CBI) used to display the average rates of the country’s most tradable currencies such as the Dollar, the Euro and UAE’s Dirham. Searches in the archives of the website would also show the Yuan instead of the Dollar.

The rates are the average trading figures obtained from licensed currency exchange shops across the country in different intervals of the day.

In their reports over the move, Iran’s media said the CBI had removed the Dollar from after the prices of the hard currency on Sunday exceeded those of the Euro – what they said was an “unreasonable” phenomenon as the Dollar used to always be sold at rates below the Euro.

In Sunday’s trading, the Dollar in Sanarate exceeded Rials 102,800 while the Euro stood at around Rials 93,880.

The average price of the Yuan in Monday trading in the same platform was put at Rials 11,688.

In February, Iran announced that it had stopped using the Dollar as the official reporting currency and instead switched to the Euro. This was seen in line with efforts to reduce the impacts of returning US sanctions against Iran that included restricting the country’s access to the greenback among other bans.

Iran has taken several other measures to reduce its vulnerability to US economic sanctions specifically the depreciation of its Rial.

Earlier this month, the government of President Hassan Rouhani unveiled a much-awaited package of policies to strengthen the Rial.

The package, which was unveiled by the Governor of the Central Bank of Iran (CBI) Abdolnasser Hemmati during a live televised interview on Sunday evening, most importantly comprised mechanisms to control the US dollar rates through a recently launched “secondary currency market.”

The package started to show immediate effects after the rates of the Dollar that had gone as high as Rials 120,000 over the weeks prior to the unveiling of the package started to slide to as low as Rials 90,000 and stood around the same level for several succeeding weeks.

The number of countries switching to national currencies to settle bilateral trade deals is growing.

When US President Donald Trump re-imposed sanctions on Iran, he warned that any company doing deals with the Iranians in dollars would also be subject to sanctions.

Several Russian companies are also under US sanctions, while Trump’s tweet last week doubling tariffs on imports of Turkish steel has caused Turkey’s currency to crash more than 20 percent against the US dollar.

Russian Foreign Minister Sergei Lavrov and his Turkish counterpart Mevlut Cavusoglu said they backed using national currencies, not the US dollar, in bilateral trade.

Lavrov told a joint news conference with Cavusoglu in Ankara that identical processes have been happening in trade with Iran.

“Not only with Turkey and Iran, we’re also arranging and already implementing payments in national currencies with the People’s Republic of China,” he said.

Iran and Turkey are already using national currencies following an agreement last October, with a similar arrangement also in place between Iran and India.

Lavrov echoed statements by Russian President Vladimir Putin, saying he was confident “the grave abuse of the role of the US dollar as a global reserve currency will result over time in the weakening and demise of its role.”

There have already been settlements in national currencies between Russia and the BRICS – the bloc that also includes Brazil, India, China and South Africa.

Elsewhere across the world, Nigeria has introduced China’s yuan as an alternative trading currency to the US dollar.

First Auction Of Yuan In Nigeria

Last month, Nigeria’s central bank sold yuan at its first auction of the Chinese currency, two months after it agreed a $2.5 billion swap with Beijing.

Nigeria is Africa’s biggest nation by population and its largest economy due to its oil exports. The OPEC member imports heavily from China which is Nigeria’s biggest trading partner after the US.

Trade volumes between China and Nigeria totaled $9.2 billion in 2017, with the African country running a big deficit through its $7.6 billion imports.

China has also signed a three-year swap worth $4.8 billion with South Africa and similar deals with other emerging markets, some of which have been selling renminbi in businesses.

Moreover, an unfolding trade war between the US and China is taking its toll on their bilateral trade while American sanctions on Iran are raising interest in oil trade in yuan.

China has threatened to retaliate by slapping duties on several American commodities, including oil which has been flowing in greater volumes to the world’s biggest consumer of crude in recent years.

According to energy experts, a cut in Chinese purchases of US oil may boost Iran’s sales, which Washington is trying to curb with new sanctions due to “snap back” on November 4.

China, the world’s biggest oil importer is moving away from the dollar, by paying for imported oil in Chinese currency. And it doesn’t end with China. Venezuela, Iran, Qatar, Russia and now Nigeria are also using the Chinese Yuan to settle their own oil trades.

China’s launch of yuan-denominated Shanghai futures in March has created a lot of enthusiasm among international companies seeking to tap the Asian nation’s bustling commodity markets.

Experts say the new futures contract traded on the Shanghai International Energy Exchange is now on course to become an alternative international oil benchmark not priced in dollars.

Iran Bans Using Dollar As Base Import Pricing Currency

Iran earlier moved a step closer to a plan to ditch the dollar in its trade activities by announcing that purchase orders by merchants that are based on the greenback would no longer be allowed to go through import proceedings.

Iran’s domestic media reported that the policy was in line with an official request by the Central Bank of Iran (CBI) and was specifically meant to address fluctuations in market rates of the dollar.

IRNA news agency quoted Mehdi Kasraeipour, CBI’s director of Foreign Exchange Rules and Policies Affairs, as saying that the move had become effective from Wednesday by virtue of a letter sent to the Ministry of Industry, Mines and Trade.

Kasraeipour emphasized that this was not expected to create any major trouble for traders, stressing that this was because the share of the dollar in Iran’s trade activities was not high.

“It’s been for a long time that Iran’s banking sector cannot use the dollar as a result of the sanctions,” he said.

US banks are still banned from dealing with Iran as part of an old US trade embargo that still remains in place. Accordingly, this is believed to have already effectively blocked any transactions with Iran which is based on US dollars because they would ultimately have to be cleared in the US.

“Considering that the use of the dollar is banned for Iran and traders are literally using alternative currencies in their transactions, there is no longer any reason to proceed with invoices that use the dollar as the base rate?” Kasraeipour said.

The official further emphasized that Iranian merchants would need to inform their suppliers to change the base currency from the dollar to other currencies so that the related import documentations can be proceeded at Iran’s entry points.

He said the merchants also needed to specify whether they would proceed with their payments through banks or currency exchange shops.

Kasraeipour said when an invoice is issued in dollars, a demand naturally develops in the network of exchange shops for dollars. He further suggested that this could eventually lead to a rise in the rates of the hard currency.

Meanwhile, criticisms are emerging in Iran’s media over the costs that this policy could create for merchants and eventually the consumers.

ISNA, for example, quoted unnamed merchants as saying that they and the foreign suppliers would have to consider an extra expense for converting the base currency from the dollar to other currencies. This, it said, would increase the costs for imports and eventually push up the prices of commodities imported.

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