Iran Suspends "PetroDollar" Agreement - Hussein (Iraq) & Ghaddafi (Libya) Were the Only Others To Ever Challenge Abiding By This Agreement

In the 1970s, the Arab nations  struck a deal with U.S. President Richard Nixon establishing an alliance that would maintain the dollar as the standard oil exchange currency in exchange for military support from America. The use of the dollar as a standard currency for oil exchange was accepted by Saudi Arabia and the remaining block of Organization of the Petroleum Exporting Countries (OPEC), which include Iran and 11 other Middle Eastern, African, and South American countries.

SOURCE: 01-31-17 FINANCIAL TRIBUNE - The  Iranian English Economic Daily -  Iran to Ditch US Dollar in Official Reports 

Iran will stop using the US dollar as its currency of choice in its financial and foreign exchange reports from the new fiscal year that begins in March, announced the governor of the Central Bank of Iran late Saturday.

"Iran's difficulties [in dealing] with the dollar were in place from the time of the primary sanctions and this trend is continuing, but we face no limitations regarding other currencies," Valiollah Seif also said in a televised interview as reported by CBI's official news website.

Seif gave strong hints that the country may opt for euro in releasing its key economic reports.

Stressing that the US dollar makes up a meager portion of the country's foreign trade, the official said it would not be logical for the US currency to be the base currency for economic reports under the current circumstances.

"In other words, we have to set a currency as the basis of financial reporting that has better stability and greater application in our foreign trade," he said.

According to Seif, who also heads the Money and Credit Council, the central bank has embarked on the process because Iran conducts the lion's share of its trade deals with the EU, China and the UAE. This leaves the country with the two options of "selecting a basket of currencies or choosing the currency that plays the biggest part in foreign trade".

He announced that the choice currency for financial reporting will change within the next one or two months, adding that in line with this plan, the CBI has focused on signing more currency swap agreements.

"That is why agreements have been reached with various countries, namely Azerbaijan, Iraq, Russia and Turkey, but unfortunately these accords cannot be implemented," he said, citing a lack of suitable imports to match the exports of crude oil as the reason.

This lack of trade balance, he adds, hampers the flow of capital and "it looks as if we cannot expect these currency swap agreements to come to fruition until a trade balance has been reached".

Forex Reserves Intact 

The CBI governor pointed to safeguarding the country's foreign exchange assets held overseas as a vital issue for Iran in international markets, noting that while the country had no problems regarding the matter before the international sanctions, it became increasingly difficult for the country to hold its reserves in certain countries once sanctions on the country's nuclear program intensified.

That is why Iran's foreign exchange reserves were only kept in countries that purchased its oil, "but fortunately things have changed now and we have the liberty to easily keep our reserves in major European banks and even in their central banks".

In a recent report outlining the achievements of the nuclear accord, CBI reported that

  • Since the nuclear deal was implemented in January 2016, more than $9.9 billion of the central bank’s frozen oil money were released and repatriated from the UAE, Britain, India, Greece, Italy and Norway.
  • The bank added that after the adoption of the interim agreement, $12 billion of its blocked assets were freed from Japan, South Korea and India in the form of installments

On concerns regarding the possibility of a repeated freezing of the country's foreign exchange reserves and a lack of transparency by the central bank about repatriating oil revenues, the CBI governor said there is no need to bring the oil income into the country whatsoever.

"If the question is whether or not we own the oil revenues, then the answer is definitely yes," Seif asserted. "But do we need to bring it inside the country? The answer will certainly be in the negative."

He did, however, note that in emergency cases such as the forex needed for travel or in medical cases, the central bank is willing to bring the hard currency home.

The CBI governor then referred to fluctuations in the Iranian foreign exchange market in the past few months, which saw the greenback rise above the 40,000-rial per US dollar threshold. He said the foreign exchange reserves of the country are currently "in a better state than in other periods and I assure my countrymen that there is nothing to worry about regarding currency reserves".

Seif identified the dominant role of money changers in the forex market as one of the reasons behind the rise in currency rates, because of which the central bank is encouraging importers to conduct their foreign exchange dealings through the banking system .