These days, international investors watch Iranian economy very closely at all fronts, wondering how and by what means to enter the country’s markets. Nonetheless, they first have to deal with uncertainties regarding their potential existence in the Iranian economic space. The most relevant issue is domestic monetary policy and exchange risk, which may endanger their whole investment as had taken place before in various occasions in all around the world. Swift descend in value of the host country’s currency is a nightmare for every international investor. This issue is also a matter of concern for those who ponder entering into Iranian markets so to expose their assets to country’s exchange risk.
Taking into account this specific risk, there are three pillars affecting the stability of domestic currency, so to ensure international investors their assets are relatively immune from currency depreciation. First pillar is about how domestic currency is backed by internationally accepted and valuable means. That is, in case once it is perceived that issued money in domestic currency lacks sufficient backing, all-front attacks to change domestic money to foreign currency or hard assets would accelerate the descend. The second pillar is about the strength of domestic economy, and so the concept of how persistent the economy would be especially in times of crisis. A good instance of today is Venezuela whose economy is being highly destabilized due to lack of oil revenue and weak fundamentals.
The third pillar is monetary and exchange policy directions and more importantly the way decisions are made by the central bank and other relevant authorities. Many countries around the world have weak institutional diligence, making them unable to have independent and stable policies. The current state of monetary policy decision making in Iran is on Money and Credit Council, and the Central Bank of Iran. The council consists of people from administrative offices, parliament, as well as independent experts, which make it highly independent from the administration. The exchange rate policy foundation is Managed Floating Rate, suggesting a market-based rate that is not pegged to any other currency but well managed in a controlled boundary.
The Iranian currency is backed by country’s strong international currency reserves and gold, and well supported by oil revenues and rich mineral and energy reserves. Based on regulations, the central bank is not able to issue money from the thin air. Moreover, the fundamentals of Iranian economy are strong enough to support the monetary policy. During recent commodityprice plunge, which has made many notable currencies devalued, the Iranian money has kept its value highly stable, even better managed than notable Canadian and Australian dollars.