Exchange Rate Unification, the Equilibrium Real Exchange Rate, and Choice of Exchange Rate Regime--The Case of the Islamic Republic of Iran

by V. Sundararajan

The Islamic Republic of Iran made two major attempts at liberalizing its exchange system in the 1990s. First, the number of exchange rates in the official market was reduced from seven to three in 1991, representing a significant simplification and rationalization of the multiple exchange rate system. Subsequently, in March 1993, the three official rates were unified, and the official rate was linked to the parallel exchange rate. While the premium on the parallel exchange market was virtually eliminated in the period immediately following unification, the continued provision of foreign exchange for essential imports and repayments of foreign debt at a more appreciated exchange rate, coupled with a steep decline in international oil prices negatively affected the fiscal position. This led to a discontinuation of the link between the official and the parallel exchange rates, and, in May 1994, the authorities reverted to a dual exchange rate system by establishing a more depreciated "export rate" in addition to the official rate.

42 pages, Kindle Edition

First published January 1, 1999