By Micah Halpern
I've Been Thinking:
The rial, Iranian currency, has hit an all time low against the dollar.
There are several reasons for this massive drop in value. The most obvious explanation is that, just like almost every other currency in the world, since November, the rial has dropped against the dollar.
Yes - the dollar has strengthened since the election of Donald Trump. This hurts Iran very seriously. The rial is now exchanging at nearly 43,000 to a dollar when, only a week ago, it was at 39,000 to the dollar.
This is the weakest the rial has been. In 2012 it hit its previous low of 40,000.
President Rouhani of Iran has pledged to strengthen the rial much in the same way that he brought down inflation. When he entered office Rouhani brought down Iran's inflation to single digits from over 40% inflation which is where it was before he took office.
Strengthening the rial will prove more difficult than controlling inflation. A weaker rial is going to make it harder for Iran to buy products from abroad and to import essential and luxury goods.
The Iranians have a plan. They are going to inject $5.8 billion into the Iranian economy to boost the rial and keep it all in Iran. This is a dangerous step but it may be enough to counter the downward spiral.
If the rial continues to fall, Iran will spin into hyper-inflation which will make it impossible to compete in the international market.
Micah@MicahHalpern.com
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