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Iran Currency Crisis

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Iran Currency Crisis

  1. 1. Iran Currency Crisis Presented by: Anil Nandyala | Arunachalam Ramanathan | Jigar Kotak | Richa Daruka | Sonam Keshri
  2. 2. AGENDA O Economic Scenario - Iran O Sanctions on Iran by UN & EU O Reasons for imposing sanctions O Post the sanctions O Fiscal Deficit – Iran O Circular Flow of Money O Exchange Rate System O Recommendations by Economists
  3. 3. Economic Scenario - Iran O Iran possesses O 10% of World’s Oil O 15% of World’s Gas reserves O Crude oil composes of 90% of exports O Oil Export O Contributes 42% of GDP O Employs 31% of labor force O Currency of Iran: Rial
  4. 4. Sanctions on Iran by UN & EU Imports: O Ban on the supply of heavy weaponry and nuclear-related technology O Inspection on cargo to stop Iran's acquisition of illicit materials Exports: O Ban on Oil exports to US & EU O Block on Iranian arms exports O Ban on export of key equipment and technology for the refining and production of natural gas Others: O Ban on all trade in gold and other precious metals O Prohibition of financial transactions with Iranian banks
  5. 5. Reasons for Imposing Sanctions O A nuclear-armed Iran would prompt a proliferation cascade in the Middle East O Stockpile of 20% enriched Uranium O Moving towards Israel redline for military action O Not adhering to International Atomic Energy Authority (IAEA)
  6. 6. Post the Sanctions
  7. 7. Fiscal Deficit - Iran Iran is on the verge of a fiscal deficit. It can be reduced if: O Taxes are increased O Iran is a export driven economic nation and unemployment has started because of the sanctions. Government couldn’t earn through taxes. O Funds are borrowed from foreign nations O SWIFT blocked the Iran banks from the global financing system O Money is printed O Iran might go into the state of hyperinflation SWIFT - Society for Worldwide Interbank Financial Telecommunication
  8. 8. Circular Flow of Money
  9. 9. Exchange Rate System O Official Exchange Rate O Available in limited amounts for students, tourists travelling abroad and importers of essential goods like grain, sugar and medicine O $1 = 12,260 Rials O The Non-Reference Rate O 2% lower than the black market exhange rate O Available for importers of non-essential goods O $1 = 25,480 Rials O Black Market Exchange Rate O An illegal exchange which prevails when there is currency devaluation O Because of speculators and panic in Iran, the public started to convert Rials into US Dollars O $1 = 33,500 Rials (as on Oct 1,2012)
  10. 10. Recommendation by Economists O Dollarization O Prevents the state of hyperinflation O Goods and services will be priced in dollars O US inflation rate will be Iran’s inflation rate O Central Bank of Iran will not be able to implement any independent monetary policies
  11. 11. Thank You

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