Iran Begins To Lose Face… Embargo and Sanctions Are Working
The on-going debate, embargo and sanctions over Iran’s nuclear program is as dangerous as it is frustrating, with both hawks and doves relying on subjective, “evidence” on Iran’s intentions and the effectiveness of UN sanctions,. Earlier in the week , however, an incontrovertible fact was added to the growing body of evidence to suggest that the latest round of US and EU sanctions has Iranian resolve beginning to crack: the country is in the midst of a currency panic.
Iran’s central bank, announced an 8 percent devaluation of the Iranian rial, from 11,300 to 12,260 to the dollar. Until 2010, the rial had been kept at a relatively stable 9,000 to the US dollar. The new official rate will be 12,600/USD
Faced with devaluating currency in the wake of continued international sanctions, Iran is cracking down on black-market money changers and warning that major speculators could face execution.
The crackdown comes as Iranian authorities are struggling to stabilize the rial, which has been plummetting. It seems for all of Iran’s rhetoric and threats, they are beginning to feel the full brunt of the sanctions.
As a warning to speculators, several money changers working on the streets of central Tehran have been arrested by undercover police officers pretending to desperately seek foreign currency.
The chief of Iran’s judiciarythreatened to seek the death penalty for major speculators. Speaking about the unrest in the foreign-exchange markets, he warned that “depending on the importance of their crimes, some of the economic corrupted can face execution,” the semiofficial Mehr News Agency quoted him as saying in a meeting with judicial officials on the currency crisis. Iran seems to be all about noise and threats.
The rial was already losing ground to the dollar and the euro during months of increasing threats of war and further sanctions against the country, 
analysts said. But after President Obama signed off on new measures against Iran’s central bank on Dec. 31, the currency fell to unprecedented lows. Since then, it has lost nearly 50% its value on the black market.
The market rate for the dollar now stands at about 18,800 rials, compared with an official exchange rate of about 11,500 rials to the dollar. Just a month ago, the market rate was about 12,500 rials to the dollar. Even at the official rate, the rial’s value has fallen sharply since Dec. 1, when it theoretically took only about 7,400 rials to buy a dollar.
A European Union ban on Iranian oil — announced on Jan. 23 and due to take effect in six months — has further worried Iranian consumers and importers. Who threatened to cut off oil supplies to Europe immediately, which never happened. Iran then threatened to push up the price of oil to 120-150/barrel, while faced with limited buyers, their buyers are demanding lower prices and discounts further hurting Iran’s economic stability
To prop up the rial, the Central Bank of Iran has taken seemingly tough measures.
The bank’s main goals have been to weed out those it blames for the crisis, described as “speculators acting in line with the nation’s enemies,” and to herd investors large and small back to the national currency.
To promote saving, the bank has raised interest rates from 12 percent to 20 percent. On orders of President Mahmoud Ahmadinejad, the rate of interest — officially “unclean” in Islam but never abolished here — had been set for years well below Iran’s official inflation rate of 20 percent, as part of a plan to promote investments in Iran’s production sector.
But the central bank’s main measure last week was announcing a new, extremely low exchange rate for the dollar and promising that the currency would become readily available on the market.
Politicians have charged that Ahmadinejad is incapable of handling the crisis. Which is what the west is hoping for.
Iran has now signaled that it is open to talks in regards to the nuclear development plans. They have lowered the tension levels in the Straits and they have toned down their external rhetoric and demands.
Originally posted here
