IBENA- we will hedge the risk of exchange rate fluctuations with foreign exchange instruments, additionally, in interaction with neighboring countries, we will replace the dollar with our local currencies, said Mohammad Reza Farzin, the head of the Central Bank of Iran.
A new corporate bond has been issued specifically for financing the “Persian Gulf Bid-boland Gas Refining Company.” This new financial instrument is an Islamic bond called a “Morabeheh bond,” and it is used to borrow money in foreign exchange currencies for investment purposes. The significance of the instrument is that all payments and cash flows for Islamic foreign exchange bonds are made in the foreign currency of euros.
“This is the first time that foreign exchange bonds have been offered in Iran, and this process will continue to finance projects that contribute to production and economic growth,” added Farzin. “From the beginning, we have announced that our economic approach is a stabilization policy, which has a theoretical basis and is defined in three parts: the foreign exchange market, the money market, and budgeting.”
The Central Bank of Iran (CBI), serving as the policymaker for the money and foreign exchange markets, established the Iranian currency and gold exchange center, also known as the “Iran Center for Exchange (ICE) ,” on February 21, 2023, to address monetary and foreign exchange challenges. The center’s principal activities involve foreign exchange transactions, including banknotes and remittances, as well as the handling of precious metals such as bullion and coins. In the near future, it is anticipated that the ICE will roll out new financial instruments tied to foreign currencies and gold assets, and an additional section dedicated to the trading of derivative instruments for foreign currencies and precious metals will be inaugurated. Notably, this institution is recognized as the official reference for pricing in the Iranian foreign currencies and gold markets.
Farzin mentioned, “Our main vehicle for advancing the country's foreign exchange goals is the Iran Center for Exchange, the positive and increasing effects of which we will soon see in Iran's economy." He continued, "The swap tool has been initiated, and it has been observed that there is currently no issue with the supply of dirhams; indeed, the supply exceeds the demand, a situation that can be attributed to the implementation of the swap."
The head of the Central Bank of Iran stated, “The next instrument is the forward contract, or ‘salaf’ in Islamic financial terminology; it is used to stabilize the exchange rate for a certain period to provide risk coverage for traders. We will also utilize the stabilization fund for insurance coverage. Previously, the foreign exchange reserve account was employed to stabilize the government’s budget. However, with the stabilization fund now established, we aim to cover future exchange rate risks for the private sector. Simply put, our goal is to mitigate the risk of exchange rate fluctuations using foreign exchange instruments.”
In a move to be independent from the dominance of foreign influence and fluctuations, Farzin remarked, “We will also start replacing local currencies with dollars and euros, as was the case with the Arbaeen event this year, which resulted in high satisfaction among the people. We are looking into replacing local currencies with international ones such as the dollar and the euro in our interactions with neighboring countries, including Iraq, Turkey, and Russia. Although the process is challenging, we must gradually move towards making ICE the main reference for exchange rates in the country. Additionally, we should pay close attention to the gold market, as it has a significant impact on the foreign exchange market, a factor that countries like Russia have taken into account.”
