What's causing Iran's currency to collapse? (+video)
Iran's currency, the rial, hit a record low on Tuesday, threatening to worsen job losses and lower living standards within the Islamic republic.
In this January 2012 photo, an Iranian street money changer holds Iranian banknotes with a portrait of late revolutionary founder Ayatollah Khomeini, in the main old Bazaar of Tehran, Iran.
Vahid Salemi/AP/File
Dubai
The Iranian currency fell to a record low on Tuesday as the Islamic republic struggles under the impact of Western economic sanctions and nervous citizens rushed to change their savings into hard currency.
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The Iranian government blamed speculators for the rial's collapse and ordered the security services to take action against them.
President Mahmoud Ahmadinejad rejected criticism of his policies and insisted the country could ride out the sanctions, imposed because of Iran's nuclear programme, after the rial lost about a third of its value in a week.
"Enemies have managed to reduce our oil sales but hopefully we will compensate for this," a combative Ahmadinejad told a news conference. He suggested domestic criticism of him was part of a "psychological war" against Iran.
"According to a report from one of the security services, 22 individuals are ringleaders of the recent turmoil in the currency market, and since these individuals are known, security institutions must act," Ahmadinejad said.
The rial tumbled to a record low of around 37,500 to the U.S. dollar in the free market on Tuesday, from about 34,200 at the close of business on Monday, foreign exchange traders in Tehran said. On Monday last week, it traded at around 24,600.
Late on Tuesday, some Iranian media reported that the currency had recovered to around 32,000, but traders contacted by Reuters could not confirm this, saying they had stopped dealing because of the extreme volatility.
The rial's slide suggested the Western sanctions were doing serious damage to the country's economy.
On Sunday, Israeli Finance Minister Yuval Steinitz said Iran's economy was "on the verge of collapse".
By freezing Iran out of the global banking system, sanctions have made it hard for Tehran to obtain payment for its oil exports. Iranians have responded by rushing to change their savings into hard currency, fuelling the rial's slide.
"This is going to cause a shutdown in transactions in Iran. All the main distributors of electronics and household items will be concerned about trading - they'll want to know where the bottom is and how long it will continue," said Mehrdad Emadi, an Iranian-born economic adviser to the European Union who is based in Britain.
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