Evidence Sanctions Against Iran are Working…

Perhaps the mullahs in Iran are finally feeling the squeeze. The World Policy Journal is reporting:

“PARIS–At the end of September, the exchange rate of the rial on Iran’s black market registered a sudden depreciation against the dollar, going from 10,500 per dollar to 13,000 in one week. At the same time, the official exchange rate of the dollar remained virtually unchanged at 10,200 rial. This event is significant.

In recent years, the central bank of Iran managed to keep the official and black market exchange rates quite closely aligned. The central bank, having large foreign exchange reserves, succeeded in stabilizing these two markets, while managing a slow depreciation of the rial. From 2005 until the end of September 2010, the dollar registered an appreciation of 13 percent against the Iranian currency. Without central bank intervention, the rial’s drop would have been much higher if one takes in account the very high rate of inflation in Iran since 2005, ranging from 10 percent in 2005 to nearly 30 percent in 2008. The central bank policy was to manage a very slow depreciation of its currency to avoid the inflationary effects of a stronger move. Not everyone agreed with this. Iranian exporters were quite critical of this policy choice which lowered their competitiveness abroad. On the other hand, networks close to the Iranian regime, especially companies controlled by the Foundations and the Pasdarans, clearly benefitted from this situation (and lobbied for it), since it lowered their import costs.

Clearly, the recent plunge of the rial against the dollar came as a shock. So what happened? It seems that the American-inspired sanctions have led to a disruption of relations between the Iranian banking system and their correspondent banks abroad.”