Iran International:

Maryam Sinaiee

Iran faces a stark choice to address a cost of living crisis: preserve subsidized exchange rates that have failed to protect purchasing power and fueled corruption or remove it and risk triggering another wave of uncontrolled inflation.

Former Central Bank of Iran governor Mohammad-Hossein Adeli summed up the core dilemma in an editorial for Donya-ye-Eghtesad last week.

“The gap between subsidized and free-market exchange rates produces severe distortions, instability, and unjust rents—while simultaneously serving certain political and distributive goals,” he wrote.

Iran’s “preferential” currency system began in April 2018 under President Hassan Rouhani, when the exchange rate was fixed at 42,000 rials per dollar.

The rial plumbed new record lows of over 1.31 million to the dollar on Monday.

Designed to curb price shocks, protect low-income households, and guarantee access to essential goods and medicine, the subsidy was funded through oil and petroleum revenues.

But as the gap between the official and free-market rates continued to widen—and maintaining the system strained the budget—the administration of Ebrahim Raisi scrapped it as part of its so-called “economic surgery.”

Officials defended the move by pointing to massive arbitrage opportunities, rent-seeking among importers of essential goods, waste of foreign-exchange reserves, and the failure of subsidies to reach consumers.

The system, they argued, had become a costly burden on the state.

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