Teaching Comparative Government and Politics

Tuesday, April 17, 2018

Money and legitimacy

If a government mismanages an economy, how is its legitimacy affected?

Steep Slide in Currency Threatens Iran’s Economy
All this week panicked Iranians have gathered in throngs outside banks and other financial businesses hoping to buy dollars, as the government seeks to head off a collapse in the rial, the national currency.

But they have met with nothing but frustration, told there were no dollars or other currencies for them to buy at the official government rate…

Forex rates in Iran
Long on a downward path, the rial plunged this week, losing 35 percent of its value against the dollar and hitting what has been widely described as a record low. The government is seeking to impose an exchange rate of 42,000 to the dollar, but in Tehran’s black-market exchanges this week the going rate was 60,000…

In an effort to squelch currency speculation, the government sent riot police into the bazaars on Wednesday, where they arrested several money changers…

However, many of those changing money in the bazaars were ordinary people seeking to protect themselves against rising prices and fearful of further declines in the currency.

Others, like Mohsen Yekta, a university professor, said they needed the foreign exchange for personal business. “Every month I send some money to my daughter in Paris,” he said. “I need foreign exchange to help her out. I don’t know what to do.”

Amid rising tensions in the region, the national currency has been sliding for weeks, but it went into free fall on Saturday. The government blames unilateral United States sanctions that continue to limit bank financing, despite the 2015 nuclear agreement that lifted international banking sanctions. Market insiders say that fears are also rising that President Trump will withdraw from the nuclear agreement…

Ordinary Iranians agree with most of these explanations, but also blame the government for poor planning and bad management of the economy. They also view the black-market rate as one of the few trustworthy indicators of the country’s economic health.

Earlier this year, complaints about economic conditions and corruption exploded into a more general protest against political conditions in more than 80 cities across Iran. There are no signs so far that the current troubles are leading to unrest…

The currency slide is taking its toll on business, with many firms selling foreign products halting all sales, unable to determine prices…

While Iran has endured similar currency crises in the past, some commentators said they were not seeing light at the end of this particular tunnel. “Our economy is based on bad planning — it’s wishy-washy,” said Farshad Ghorbanpour, an analyst close to the government. “Don’t expect things to get any better.”

See also: Iran Currency Crisis Could Threaten Political Stability

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