A Fistful of Tomans

Kevan Harris on Iran’s Currency Wars

A Tehran restaurant owner recently told me the advice he’d been giving his friends for the last year: ‘Sell your car. Buy dollars.’ Sound counsel, I thought. Exchanging Iranian rials for dollars at the end of 2011 and converting them back nine months later would have yielded enough profit to buy two new cars. Waiting another month would have got you a cheap motorbike too. This sort of ‘street maths’ filters into every conversation. In September a waiter told me he had just sold his stash of $10,000 for a hefty profit. A young woman took her pay cheque to the bank every month and bought dollars with it. In this unofficial currency market the value of the rial dropped nearly 70 per cent in ten months. The frenzied speculation began early last year, after the EU announced it was going to restrict imports of Iranian oil. Government attempts to stem the flight only pushed the rial’s value down further. ‘The Central Bank governor promises on Tuesday to take action, and the dollar goes up on Wednesday,’ a businessman joked. ‘So he reverses his position on Saturday, and the dollar goes up on Sunday.’

Around Ferdowsi Square in central Tehran, currency traders operate from shops and alleyways. Prices are written on blackboards displayed in window fronts. Occasionally a hand appears and erases the rates listed for dollars and gold, invariably replacing them with higher prices. Sometimes the prices are rubbed out and the boards left blank. This means the shop has run out of foreign currency. Eight hundred kilometres away, in the eastern city of Mashhad, moneychangers sit on the bonnets of cars, slapping wads of rials on their palms, calling out the spiralling dollar price to passers-by. I asked one of the young men how he knew what the going rate was, given that there was no central marketplace to verify prices. ‘You have a mobile, don’t you?’ He showed me a text message: ‘3250.’ A week earlier, the rate had been 2800 tomans to the dollar (there are ten rials to the toman). The bottom seemed to have fallen out of the market.

On 3 October, a Wednesday, the government enforced a trading holiday for currency exchanges in the capital and other major cities. The main target was the grey market in Tehran’s Manoucheri Street, where in a bourse housed in a few covered passages millions of units in various currencies changed pockets each day. When the police arrived to lock the gates, arresting several merchants in the scramble, a number of young men jumped on motorbikes and rode to the Grand Bazaar a few blocks away to relay the news. Someone sent a mass SMS message to bazaar shopowners calling them to action. This set off angry demonstrations, which soon spilled onto the streets. Shopkeepers closed their shutters, a few trucks were burned, and if the videos taken on mobile phones are to be believed, anti-Syrian slogans were chanted. As with the unrest following the 2009 elections, when Russia attracted a few barbs, Iranians enjoy flipping the Islamic Republic’s agitprop on its head. Unlike the 2009 Green Movement, however, the Black Wednesday protests included almost no women. Despite the fact that the demonstrators were mostly small-time hawkers and traders, Western media outlets, under the impression that ‘the bazaar’ is still a major hub of Iran’s political elite, concluded – quite wrongly – that a major revolt was kicking off again.

Over the next few days the state’s dollar ‘holiday’ seemed to be working, and the grey market shrank as bored riot police and sullen currency merchants milled around the streets near the Grand Bazaar with nothing much to do. The government had used the same tactic against money traders before, and temporarily stabilised the rate without much backlash. Last spring the Central Bank announced an official rate of 1225 tomans to the dollar. Government boosters claimed the black marketeers were being pushed out – after all, the country’s biggest holder of foreign exchange is still the Central Bank of Iran. But Iran’s borders are leaky enough to undermine the government’s attempts at stabilisation. Markets sprang up in Turkey, Iraq, Afghanistan, Armenia and Gulf entrepôts for the purpose of currency arbitrage, and the roughly 15 per cent of Iran’s GDP based on smuggling has for sure not been conducted in dollars exchanged at the official rate. So long as there is no sign of a deal with the United States, street maths will persist no matter what the government does or promises to do.

‘Panic’ is too strong a word to describe the atmosphere, even if many journalists and analysts argue, much as they have for the past three decades, that Iran is on the brink of collapse. For Iran-watchers catastrophism is a habit, but Iranians themselves are usually calmer. ‘Most people think it is a dollar bubble,’ a construction engineer told me at the height of the trading frenzy. ‘Everyone is waiting for the election to see if things settle down.’ Which election, I asked, the US presidential election in November or the Iranian presidential election in June? ‘Both.’ Sure enough, after Obama’s victory the ‘free’ exchange rate steadied, to just above 3000 tomans per dollar. Cars are a better investment than currency again – for the time being.

Talk of Weimar-style hyperinflation is over the top, but the social and economic damage is tangible. Salaried professionals – teachers, civil servants, bank managers – are watching their purchasing power decline and, with it, the lifestyle they had made for themselves over the past two decades. ‘I wanted to stay in Tehran, I really did,’ a marketing consultant complained, ‘but I’m going to try it in Dubai if this keeps up.’ Waged workers turn to the informal sector to supplement their incomes, but the rewards are disappointing. A veteran of the Iran-Iraq War who drove me into town one evening described the situation in his village: ‘My mother is fine because she is stingy and things are still cheap there, but what do I get by moving to the city? I fought at the front for six years, but now there are no houses and no jobs for people like me.’ Even the never-ending gripes of the wealthy were telling. ‘For thirty years,’ an obviously successful businessman boasted, ‘Iran was the best place in the world to make money in real estate. Now, the US is cheaper. Arabs, Chinese, Japanese – they are all making money there.’ Sure, I answered, but how could Iranians join in? ‘It is easy to get your money to America,’ he said. ‘Europe is the place you should avoid – too many taxes!’

A year or so ago people started asking whether the economic sanctions were working. Now that life has so obviously become more difficult for most Iranians the question usually asked is whether sanctions or the Iranian government is to blame. The large apparatus of US and EU bodies in charge of enforcing the economic cordon ensures that the sanctions do indeed ‘work’, since the only measures of success it recognises are the ones it sets: the number of oil barrels unsold, bank transactions blocked, companies blacklisted. No one complains about the National Iranian Oil Company and Imam Hossein University, for instance, being declared valid targets for financial interdiction by the US Treasury, since there is a dotted line connecting these institutions to the Islamic Revolutionary Guards on a Washington think-tank chart. Yet these are national organisations with employees and constituencies that stretch beyond any single part of the state. As a result, individuals with little love for the Islamic Republic find themselves the target of Western pressure.

The question of who is to blame is misleading, since what the government does is determined by the sanctions. The Islamic Republic’s inability to parry the economic blows is partly the result of a weakening regulatory grasp on a large and porous domestic market. The best the government can manage is a fire-fighting approach, chasing individual crises – a speculative run on gold, chicken, lamb, wheat, rice, dollars or whatever. Under assault, state price controls on these commodities break down. The result is either what economists in the 1970s used to call ‘inflation of the producers’, as small and medium-sized businesses try to recoup their costs by raising prices and keeping them high even when their own costs fall; or shortages of goods because sanctions make them too pricey or impossible to obtain. A kebab platter at a nice restaurant falls into the first category, diabetes drugs into the second.

Faced with such a stark drop in their purchasing power, many have accused Ahmadinejad of manufacturing the currency crisis. ‘He knew a major decline in oil revenue from sanctions would drive the budget into deficit,’ an economic journalist told me, ‘and so he deliberately allowed the rial to devalue in order to make up the gap – to pay the workers and to finance his projects.’ Was this the plan all along? ‘Sitting MPs claim Ahmadinejad is the agent behind the currency crisis,’ he insisted. ‘They know things we do not.’ This logic, applied post facto, is understandable in a country where accurate information is scarce and contradictory accounts abound. Yet if Ahmadinejad were cunning enough to manufacture a currency crisis, surely he’d have been canny enough to realise how badly it would backfire on him personally. Instead, his presidency is going down as the worst debacle of the post-revolutionary order. Even former fans are rushing for the exits. ‘I personally told Mr Ahmadinejad what his problem is,’ the Supreme Leader’s representative in the Revolutionary Guards, the conservative cleric Ali Saeedi, was quoted as saying in a local newspaper. ‘I told him he could have been a hero for the nation. But unfortunately this did not happen. The worst thing is that he has turned all his supporters into opponents.’ According to Gholamreza Karbaschi, a former mayor of Tehran, ‘Ahmadinejad and the members of his team have produced a situation where everybody is now a reformist.’

The sublimated Kremlinology that passes for Iran-watching presumes that the country’s political elite hovers over society in a totalitarian dirigible. In essence, we are stuck in a 1950s mindset: the significance of the internal post-revolutionary battles around Rafsanjani, Khatami and Ahmadinejad passes the Cold Warriors by as they frantically wave about a world map covered in red. The Ruling Jurist, the Supreme Leader, the man with the big office, Ali Khamenei, tends to end up as Stalin in this equation. The conventional wisdom in the US is that in the 1980s Ayatollah Khomeini was the arbiter; and today Khamenei is the decider. The problem with this is that Khamenei’s decisions are ignored by politicians on all sides when they are inconvenient, and praised when they are useful – i.e. can be used against opponents.

In October, Ahmadinejad tried to arrange a visit to Tehran’s Evin Prison to see his former media adviser Ali Akbar Javanfekr, now serving a six-month sentence for ruffling the feathers of the president’s opponents in the conservative establishment. Iran’s judiciary denied Ahmadinejad permission for the visit, and the state prosecutor announced that the president should focus on the economic crisis instead. Ahmadinejad responded by publishing the text of the judicial letter of refusal on his website and asserting his right to go where he pleases. Media outlets immediately began to crackle with antagonism as the various players took up their positions. The Leader stepped in, rebuked the lot of them, and demanded that unity be observed in the face of Western bullying. The truce lasted a few days before the nastiness started up again, with all sides claiming their fealty to Khamenei, God’s putative representative on Earth. In other words, to the consternation of the Obama administration, there is no single man in Tehran who can be dealt with to the exclusion of everyone else. Iranian politics is generally conducted by consensus, and there are plenty of individuals who can veto the process. Iran’s leaders are mostly on a mundane ego trip. ‘When the Islamic Republic’s statesmen deliver their weekly Friday sermon,’ an Iranian journalist told me, ‘they think that the whole world, including the White House, turns on the TV and watches closely.’

The danger is that the US believes it has already won. There is, however, little chance of unconditional surrender; as has been evident in Gaza, collective punishment doesn’t produce the outcome Western (or Israeli) policymakers desire. Sanctions limit the power of those inside Iran to challenge the government’s course and force them to cling to the state for survival. The idea that the country has an autonomous civil society ready and waiting to replace a regime we don’t like is a profound misreading of events in Iran, as it was in Iraq a decade ago. In the wake of the Green Movement and the Arab Spring, many have celebrated the power of the young and educated middle class as a driver of historical change as eagerly as Marxists hail (or hailed) the destiny of the proletariat. But who educated all these young people, including the women? In understanding Iran the clerical robes are less important than the fact that the Islamic Republic is an industrialising nation with huge ambitions and high status anxiety. The ambition and the anxiety both come from the same place: the strong nationalism of a middle-income country faced by imperial pressure from the outside and self-doubt on the inside, fuelled by a perceived decline in the world pecking order. The post-revolutionary dynamic, as the sociologist Asef Bayat has argued, has meant that social pressure from below has continually forced a dispersed and fractious political elite to refashion its appeals for support and electoral participation. Since the end of the Iran-Iraq War, everyone in Iranian politics has been fighting for their own version of modernisation.

The myth is that the Islamic Republic derives its legitimacy solely from the ‘religious poor’, when in reality all sides try to curry favour with the middle classes. Ahmadinejad travels round the country invoking Cyrus the Great and boasts that Iran will become an economic power on a par with the West in twenty years. In doing so he sounds oddly like the Shah, another man with a serious ego problem. The Green Movement did not signal a great change: the popular upsurge was, rather, a formidable display of the social forces that the Islamic Republic itself helped to create. The conservative right put on a show of strength for less than a year before it fragmented and turned on Ahmadinejad. The elites scramble to position themselves for the presidential elections, but the outcome is unpredictable to everyone, including the Leader himself. The former president Hashemi Rafsanjani recently negotiated the return to Tehran of his son, Mehdi, long a target of conservative anger, to do a stint in jail (he was accused of inciting unrest after the 2009 election). For several months, Khatami released carefully worded statements about reformist participation in the next election that could be read as a quid pro quo with the conservatives. Then a rumour emerged that Ahmadinejad had asked for his 2009 election opponents, Mir Hossein Mousavi and Mehdi Karroubi, to be released from house arrest – a rumour the president didn’t deny. What does it all mean? Maybe nothing more than that alliances and enmities are being rearranged yet again.

Meanwhile, Iran’s oil exports have dropped to around half their 2011 levels and Ahmadinejad’s government is preparing an austerity budget to rival those of its EU antagonists. The rial’s open exchange rate still hovers around 3000 tomans to the dollar, and more currency traders have been arrested. The state’s control of events is as limited as ever.