According to several reports, in response to President Donald Trump’s temporary immigration band, Iran has opted to ditch the U.S dollar. The governor of the Central Bank of Iran stated that the change would be implemented in March when the new fiscal year begins.
In place of the U.S dollar, Iran is looking to find a new common foreign currency or to use a basket of currencies for all official financial transactions. The decision to change currencies followed shortly after President Trump’s decision to implement a temporary immigration ban on citizens from a variety of Middle Eastern nations including Iran.
Other countries included in the band are citizens from Iraq, Libya, Somalia, Sudan, Syria, and Yemen. The ban is to last 90 days until vetting is improved.
While discussing the changeover, Valiollah Seif, the governor of the Central Bank of Iran hinted that Iran could opt for the euro. Seif stressed that the U.S dollar made only a small portion of the country’s foreign trade and because of that he felt it to be illogical for the U.S dollar to be the base currency for economic reports currently.
“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.
Forbes noted that the ban could be quite complicated for Iran due to the fact that their most important export is oil, which is typically priced in dollars. As of now, the nation is on course to earn an astounding $41 billion from oil sales for the current fiscal year. Furthermore, swapping to another currency could add a “degree of currency risk and volatility” and could complicate matters for the authorities.
The reason that this situation is important to understand, is that in the 1970’s, President Nixon established a deal which would make the dollar the standard oil exchange currency, in return for military support from the U.S. This deal was accepted by Saudi Arabia and the rest of those participating in the Organization of the Petroleum Exporting Countries (OPEC), that includes Iran and 11 other African, Middle Eastern, and South American nations.
OPEC is responsible for 42% of all oil production throughout the world. They also possess 72% of the world’s oil reserves. As long as the U.S dollar is the standard currency used to measure the value of oil, the demand for the U.S dollar remains relatively high. As long as this is the case, the U.S dollar should remain as the “world’s reserve currency” which prevents many of the effects of inflation from hitting the U.S consumer base too hard. However, if Iran goes through with their decision, it could pose a number of problems for the U.S government, who may, in turn, lash back at Iran.