Hanke Uncovers Iranian Currency Hyperinflation

The rial has been decreasing since President Barack Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July of 2010. In July of that year the official exchange rate of Iranian rials for U.S. dollars was very close to the black-market rate. However, the two rates have been diverging ever since. The sanctions represent an attempt to convince Iran to comply with all of its nuclear obligations and engage in negotiations on the future of its nuclear program.

“There are several licensed dealers in Iran where you can trade at 28,000 rials to the dollar but even that is a rate that overvalues the rial. In fact the black market rate is closer to 35,000 rials,” Hanke said.

“It took Prof. Hanke and I about a month of searching to find the dataset that we were looking for. I had to make use of Professor Hanke’s vast network of contacts to have any success in finding the data. There was a lot of corresponding until someone was able to locate a currency trader in Iran who I was able to get in contact with briefly. He pointed us to a website that currency traders were using,” research assistant, senior Hassan Yasin wrote in an email toThe News-Letter.

Once the monthly inflation rate of a country exceeds 50 percent, it is officially undergoing hyperinflation. Hanke estimates that Iran is experiencing a rate of about 69.6 percent inflation at the moment. He, having studied currencies for 45 years and been responsible for stopping 10 of the world’s 57 hyperinflations, was able to uncover the disparity between the Iranian government’s official exchange rate and the black-market exchange rate.

“With Iran the signal to noise ratio is almost zero,” Hanke said. “Even if you are there, you don’t know what’s going on. It is a very murky, kind of unstable equilibrium at all times, at least at the political level. But I knew what the black market rate was because I had a source that was telling me every week what the aggregate amount of black market activity was and what the rates were. The official exchange rate is just a fiction, however the black market rate is about the only free market in Iran.” …

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image: flickr.com/bastian

2012-10-19 20:22:31

Source: http://www.soundmoneyproject.org/?p=8567