Competitive Currency Devaluation

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Topic A: Competitive Currency Devaluation

For 30 years, the exchange rate regime of the Islamic Republic of Iran was following a multi-layered system where there existed mora than one official exchange rate. It’s important to know that there exists a pre- and post-revolution periods where the Central Bank of Iran (CBI) implemented a fixed exchange rate regime that over the years caused many forms of foreign exchange rate regulations making an emergence of a black market beside the official market.

Since March 2002 exchange rate unification took place leading a floating exchange rate regime that resulted in the Dutch disease leading a reduction in price competitiveness, a sharping increase in imports affecting the performance of the currency. To control this situation, the government had a tight control over the oil revenue and letters of credit ensuring that Rial remain relatively stable until 2011 when US and the EU sanctions against the country made the Rial lose about 66% of its value against the US Dollar. The period between 2010 and 2015 has been marked by a sharp decrease in the value of the Rial in order to shore up the country’s faltering economy, in 2013 the CBI announced a drastic devaluation.

In this sense, allowing the Rial to devaluate is a good star, but not enough a country should always search the best combination between policies that would help domestic producers rise and measures required to protect the poor as prices for basic goods such as bread and energy rise. That’s why this experience lead to the Islamic Republic of Iran an initiative to support the devaluations as a way to overcome international restrictions or sanctions but it doesn’t mean that Iran supports the competitive devaluation of currency as a legitimate way of making monetary policy. Following this, the Islamic Republic of Iran proposes the “Real” strategy that focuses in the cooperation of the regional bodies to set up some common indicators such as the deficit or current account surplus of any country, however it is important that the international community uses all the international instruments of cooperation that should allow to avoid the scenario of unilateralism, incoordination, nationalism and deglobalization that would harm growth forecasts of the world economy. This does not mean that the situation can straighten up quickly but in any case, whole economy will be more stable if confidence recovers with the “Real” strategy.

Topic B: Declining Oil Prices

“A mountain never meets a mountain, but a man meets a man”, states an ancient Persian proverb. Effectively, there are impossible things in nature, such as two mountains meeting. However, when the mountains are composed by humans (as states are), even