Iranian government may take over currency trading to cope with inflation

A battle of wills between Iran’s government and foreign exchange traders may end with authorities taking over all legal trade in the rial, leaving many Iranians to seek hard currency illegally in a poorly supplied black market.

This arrangement would probably let the economy limp on in the face of Western economic sanctions. But it might also increase corruption, distort companies’ business decisions and fuel middle-class discontent with President Mahmoud Ahmadinejad…

It is not clear, though, whether the government will over the long term have enough hard currency to satisfy all demand through its official channels, especially if sanctions cut its exports far enough to push its trade balance into deficit.

At the end of last year, Iran had official foreign reserves of $106 billion, according to the International Monetary Fund. Their current level is a closely guarded secret, but some analysts estimate they may have dropped by several tens of billions of dollars as the sanctions cut Iran’s oil income.