As much as the Iranian’s loathe the United States, there is a healthy underground economy going on in Iran for the U.S. dollar. Like Venezuela, Syria, South Africa, et al., Iran is high on the economic misery list. Of course, there are similarities and differences as to how these pitiful economies get to where they are, but the one common dominator is the need for the United States. At least for our dollar anyway. As much hatred and vitriol spew from their jealous mouths, they can’t ignore that their economies need the U.S. dollar for help. That is in the black market you understand. Professor Steve Hanke of Johns Hopkins has produced a chart that shows the relationship of the dollar to the rial on both the official and unofficial markets. This was in April of 2018.
As you would expect the black market exists because it offers a better exchange rate than the official. The official rate on April 27, 2018, was 42,000 rial per dollar compared to 56,500 on the black market. Of equal importance is to note the drastic decline that was taking place in April. The spread between the official rate and the black market rate was fairly steady until the precipitous widening in April of this year. This causes a scenario in which demand for dollars will increase, especially on the black market.
The picture today in Iran is much bleaker. The value of the rial per dollar has dropped roughly 100 percent since April of this year. Basically, the perfect storm of economic grief has come to Iran. The recent collapse in the value of the rial was spawned by President Trump pulling out of the Joint Comprehensive Plan of Action (JCPOA) nuclear deal and laying on more primary and secondary sanctions against Iran.
If this economic currency scenario sounds familiar, it should. You have seen this misery in Venezuela and Syria, among others. Iran can now be a proud member of this losing club, as it rates third behind the aforementioned countries in Professor Hanke’s inflation misery index with an estimated annual rate of 53.8% as of April of this year. Current figures would estimate inflation at 100% and rising.
In controlled economic states like Iran, you can only really get an accurate picture of what a currency is doing by looking at its unofficial rates. The official rate is merely a number the country wants it to be. The black market is in effect a market with a premium upon the real rate of the rial. According to Professor Hanke, “A 34.5% black-market premium indicates that Iranians were willing to pay almost 35% more for U.S. dollars in the black-market than if they were lucky enough to obtain them at the official exchange rate.”
As one would assume, this will end badly for the Iranian people. Remember again all ye socialist lemmings, President Hassan Rouhani will not miss a meal or lose a barrel of oil. The misery index will flow from bottom to top slowly, and when it does, the natives will get restless, and seek change as they always do.