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Afghan Currency-Exchange Window Closing For Iranians

October 05, 2012

by Frud Bezhan, Shahpur Sadar

HERAT, Afghanistan -- Facing a crippling currency crisis, Iranian businesses and individuals are looking for ways to protect their assets and ease their financial woes.

Unable to send money abroad because of international sanctions and a ban on Iranian bank transfers, many have looked to neighboring countries as a place to trade in their suffering domestic currency, the rial.

That's where Afghanistan came in. That is, until the rial's recent collapse.

Iran's war-torn neighbor is flush with foreign currency thanks to the massive international presence in the country over the past decade. And as surrogate currencies, rials, euros, and dollars were swapped on the black market and at legal exchanges across the country.

That offered opportunities not only for Iranians seeking more security for their cash holdings but for Iran itself, which is keen on increasing foreign reserves within its borders. That window of opportunity appears to have closed, however, as Afghan money exchangers and companies are wary of dealing in the Iranian currency.

The Khorasan Bazaar in Herat, on Afghanistan's border with Iran, teems with dozens of small shops and stalls, where money traders operate.

Traders have long exchanged rials for the large number of Afghans who return home after living and working in Iran. And, when the bazaar's shopkeepers noticed an uptick in Iranians bringing cash to the city in the past few months, they carried on the business practice.

According to the shopkeepers, Iranians looking to transfer money in Herat often worked through Afghan middlemen, who took a significant cut by way of commissions. There were palpable benefits, however, as exchange businesses could also transfer large amounts of money to individuals' family members or business associates around the world, often within minutes.

Downward Spiral

Abdul Sabur Nabirzada, an Afghan money trader at the Khorasan Bazaar, says working with Iranians was initially an attractive business venture for Afghan traders. This was because the Iranian rial was considered a valuable currency in many parts of Afghanistan -- with many Afghan companies even accepting payments from traders in rials -- and there were profits to be made in the exchange.

But he says money trading involving rials has slowed as the Iranian currency has plunged to record lows. The value of the rial has reportedly fallen 80 percent in 2012, with a nearly 20 percent drop on October 1 taking the currency to an all-time low.

The downward spiral has continued this week, according to traders in Tehran. Whereas $1 was worth 24,500 rials in the last week of September, it was worth 37,000 rials on October 2 and 40,000 rials on October 3.

As a result, Nabirzada says, nobody wants to deal in rials anymore.

"Three or four months ago, the value of the Iranian currency was high. We were buying products with rials and companies were letting us buy in Iranian currency," Nabirzada says. "Now that the currency has plummeted, they're not letting us pay with rials, but they're asking us to pay in American dollars."

'Nobody Is Buying'

Manawar Shah, who also owns a small shop at the Khorasan Bazaar, says they are no longer dealing with the rial. Only convertible hard currencies, including American dollars and euros, are acceptable.

"All the [Afghan] business owners have changed their accounts to American dollars. Nobody is buying, selling, or loaning out money in Iranian currency anymore," he says.

The currency crisis, part of a wider economic slowdown in Iran, has been attributed to international economic sanctions, to mismanagement of the country's economy, and to problems caused by the blacklisting of Iranian banks imposed by SWIFT (Society for Worldwide Interbank Financial Telecommunication), the world's main bank-transaction network.

The rapidly declining value of the rial has not only caused tremors in Iran but in Afghanistan, as well -- particularly in the west, where many locals were accustomed to using the rial as their everyday currency.

Bahauddin Rahimi, deputy of the Union of Money Traders in Herat, says many currency exchangers in the city have been hit hard by the fall of the rial. He says their savings -- the majority of it in rials -- is worthless now that they cannot exchange it into hard currency.

"Of course, there's a lot of volatility [with the rial], which has made everyone very confused. The people have lost confidence in the Iranian currency because of a lot of movement, and people lost a lot of money," Rahimi says. "People are not relying on the rial anymore. If traders are buying Iranian currency, they're not keeping it long. They don't care if they don't profit because they just want to get rid of it."

Written and reported by Frud Bezhan, with additional reporting by Radio Free Afghanistan correspondent Shahpur Sadar

Source: http://www.rferl.org/content/iran-afghanistan-rial-currency-crisis/24729954.html

Copyright (c) 2012. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.

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