Iran’s currency collapses

October 8, 2012

The rial dropped sharply last week, leading to speculation of a complete collapse and perhaps even hyperinflation.  The government responded by blaming opponents at home and abroad and making most foreign currency transactions illegal.

So what does all this mean?  I’ll leave others to comment on the political implications, including sanctions on Iran’s oil exports.  But the fall in the rial is a reminder that exchange rates like to move, whether we want them to or not.  Lots of countries have discovered this over the years, many of them the hard way:  the UK, Sweden, Mexico, Argentina, Thailand, South Africa, ….  It will be interesting to see whether Iran lets the currency float, or tries to resist.  The lesson of history is that currency prices are like the Borg:  “Resistance is futile.”

One Response to “Iran’s currency collapses”

  1. […] Evidently this is a byproduct of trade sanctions against Iran. There may be good reason for this particular aspect of the sanctions, but at first glance it seems to preclude interaction that doesn’t exist. There are lots of good economists of Iranian descent, but for obvious reasons they’re no longer in Iran. Those left seem to have little knowledge of economics. […]

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