Central Bank Warns Trusts / Behind the New Currency Crackdown

The Central Bank has adopted a new mechanism to monitor the performance of trusts.

In the years of sanctions, trusts have become one of the ways of transferring foreign exchange earnings and settling commercial payments in Iran; However, any gap between the declared commitment and the actual transfer of currency can cause difficulties in financing imports. Now, by changing the monitoring mechanism of these intermediaries, the Central Bank intends to check their operational capacity in a more limited stage before handing over the possibility of transferring higher amounts.

The new condition of the central bank for the transfer of high amounts

According to the new mechanism, the trustees must first transfer a specific amount and this operation must be approved by the central bank. After the initial transfer is approved, they will be able to transfer more amounts. The purpose of this mechanism is to deal with the phenomenon of "empty reading" and prevent the registration of currency transfers without their actual realization. In such circumstances, merely registering or declaring a financial operation does not mean actual access to the currency, and the intended transfer must be done in practice. This approach can limit the possibility of handing over heavy currency obligations to intermediaries who do not have enough power to implement them. However, the final outcome of the new policy depends on how it is implemented and how quickly operations are reviewed and approved.

How does empty reading disrupt the supply of import currency?

Trustees are responsible for a part of the mechanism of transfer of export earnings and settlement of commercial payments in Iran under the conditions of banking restrictions caused by sanctions. For this reason, their performance is not limited to a financial transfer and can also affect the process of providing foreign currency needed by importers. Foreign payments may be delayed if currency transfers are not made on time or the declared resources are not available. This issue can further affect the program of importing goods and supplying raw materials to production units.

From this point of view, checking the real power of trusts before increasing the transfer volume is an attempt to reduce the risk of currency operations. However, effective monitoring is beneficial to the business when, in addition to controlling obligations, valid payment processes and supply of import currency are not faced with unnecessary delays.

The return of more than 10 billion dollars of trust currency

The change in the mechanism of monitoring trusts has been brought up in a situation where the issue of the return of currencies in the hands of these intermediaries is still important. Abdul Naser Hemmati, the Governor General of the Central Bank, announced on October 2 that more than 10 billion dollars of the currencies held by the trusts have returned to the country and have been allocated for import. This figure indicates the return of a part of the foreign exchange resources, but it does not determine by itself how much of the total ceded currencies has not yet returned.

On the other hand, Zabihullah Khodayian, the head of the General Inspection Organization of the country, announced in August about the return of 200 million dollars from the country's resources by a trust. This issue shows the importance of following up on foreign exchange obligations and monitoring the performance of intermediaries who are responsible for transferring resources.

In such a situation, two issues must be followed at the same time; First, determining the task of the resources that have not yet returned and second, preventing the creation of new commitments without sufficient operational support. The central bank's new mechanism focuses on the second issue, but a full assessment of its performance requires more detailed information on the amount of returned resources and outstanding liabilities.

The main test of the new policy is the supply of imported currency

Making the transfer of higher amounts conditional on the approval of the operational capacity of the trusts can help to control the risk of currency resources; However, the announcement of this mechanism alone is not enough to judge its success rate. Transparency in the criteria for the approval of trusts, the clarity of the time of review of the initial transfers and the publication of detailed information about the performance of these intermediaries are among the factors that can enable the evaluation of this policy. On the other hand, if the approval process is prolonged, trade payments and supply of import currency may also be delayed. Therefore, the criterion of the success of this decision is not only limiting the access of intermediaries without sufficient power to high amounts; Rather, it should be seen to what extent this supervision helps in the actual transfer of currency, the return of resources and the timely fulfillment of commercial obligations.

Finally, the new policy of the central bank can show its practical effect when, in addition to controlling the performance of the trusts, the amount of returned currency, the remaining resources and its impact on the supply of import currency can also be clearly evaluated.