Iran bans using U.S. Dollar as base import pricing currency

2nd March 2018, Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC 

Tehran has announced that purchase orders by merchants that are based on US currency would no longer be allowed to go through import procedures. 

In what may be a preemptive move against further US sanctions, Tehran announced that going forward, merchant purchase orders that are denominated in US Dollars would no longer be allowed to go through import procedures.

According to local media reports, as of February 28 any purchase orders or other import documentation based on US dollars will not be processed by customs officials. The move comes as a result of a directive from the Ministry of Industry, Mines and Trade to the Central Bank of Iran.

According to the state-owned IRNA news agency, the policy is in line with an official request by the Central Bank of Iran and is meant to address fluctuations in market rates of the US dollar. Quoted by IRNA, the central bank director of Foreign Exchange Rules and Policies Affairs, Mehdi Kasraeipour, said the move had "become effective from Wednesday by virtue of a letter sent to the Ministry of Industry, Mines and Trade."

According to local media, the policy is in line with an official request by the Central Bank of Iran (CBI) and is specifically meant to address fluctuations in market rates of the US dollar.

The CBI’s director of Foreign Exchange Rules and Policies Affairs, Mehdi Kasraeipour, was quoted by IRNA news agency as saying the move had become effective from Wednesday by virtue of a letter sent to the Ministry of Industry, Mines and Trade.

He explained it wouldn’t create major trouble for traders because the share of the greenback in Iran’s trade activities was not high. “It’s been for a long time that Iran’s banking sector cannot use the dollar as a result of the sanctions,” said Kasraeipour.

As part of a trade embargo, US banks are banned from dealing with Iran.

“Considering that the use of the dollar is banned for Iran and traders are literally using alternative currencies in their transactions, there is no longer any reason to proceed with invoices that use the dollar as the base rate,” Kasraeipour added.

According to the official, Iranian merchants would need to inform their suppliers to change the base currency from the dollar to other currencies so that the related import documents could be processed at Iran’s entry points.

Merchants will also need to specify whether they would proceed with their payments through banks or currency exchange shops.

Tehran has long sought to switch to non-dollar based trade. It has already signed agreements with several countries and is in talks with Russia on using national currencies in settlements.

While meeting with Russian President Vladimir Putin in November, Iranian Supreme Leader Ali Khamenei said that the best way to beat US sanctions against the two countries was joint efforts to dump the American currency in bilateral trade. He told President Putin that by using methods such as eliminating the US dollar and replacing it with national currencies in transactions between two or more parties, the sides could “isolate the Americans.” As part of the transition, Iranian merchants will need to inform their suppliers to change the base currency from the dollar to other currencies so that the related import documents could be processed at Iran’s entry points. It was unclear if cryptocurrencies are acceptable units, and whether Iran is developing its own version of the Venezuelan Petro.

Ever since the crackdown on the Iranian banking sector by the US and SWIFT some 5 years ago, Tehran has sought to switch to non-dollar based trade. It has already signed agreements with several countries and is in talks with Russia on using national currencies in settlements.

Iran’s imports

Based on figures released by the Iranian Trade Development Organization, Iran has imported almost $43 billion worth of goods during the past ten months. The figures show a 22 percent rise in imports compared to the same period in the previous year.

Iran receives its oil revenue in Euros although the price of oil is determined in US dollars. Replacing dollars with Euros may not create any problem in Iran’s trade with Europe. But during the past ten months only 10 percent of Iran’s imports have come from Europe. Iran’s major trade partners are in East Asia and usually trade in dollars and their national currencies are not popular in the world markets.

Rising cost of imports

Mohammad Lahouti, the chairman of Iran’s export confederation told Fars news agency on Wednesday: “Some goods such as oil and Japanese and Korean made cars are traded based on the exchange rate for dollars.” “The ban or processing of purchase orders based on dollars will limit purchasers’ options as sellers will have to convert the value of commodities twice during the transaction,” He added. Lahouti concluded, “in this way, an importer must pay the cost of buying and selling foreign currencies; and this will bring about an increase in the price of goods.” Last December, Iran announced that it would eliminate the dollar from all bilateral trade with China, which has fast emerged as one of Iran's largest crude oil clients.

Iran Supreme Leader Ali Khamenei said that the best way to beat US sanctions against the two countries was joint efforts to dump the American currency in bilateral trade. He told President Putin that by using methods such as eliminating the US dollar and replacing it with national currencies in transactions between two or more parties, the sides could “isolate the Americans.” 

 

As Federico Pieraccini previously noted, until a few decades ago, any idea of straying away from the petrodollar was seen as a direct threat to American global hegemony, requiring of a military response. However, in recent years, it has become clear to many nations opposing Washington that the only way to adequately contain the fallout from US retaliation was to progressively abandon the dollar. This serves to limit Washington’s capacity for military spending by creating the necessary alternative tools in the financial and economic realms that will eliminate Washington's dominance. This is an essential component in the Russo-Sino-Iranian strategy to unite Eurasia and thereby render the US irrelevant.

De-dollarization for Beijing, Moscow and Tehran has become a strategic priority. Eliminating the unlimited spending capacity of the Fed and the American economy means limiting US imperialist expansion and diminishing global destabilization. Without the usual US military power to strengthen and impose the use of US dollars, China, Russia and Iran have paved the way for important shifts in the global order.

 

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https://www.rt.com/business/420197-iran-farewell-us-dollar/

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