Testing the Effectiveness of Tether's Overnight Shutdown: Containing Volatility or Shifting Sentiment?

Trading restrictions and rial settlements highlight the need to publish an assessment of recent currency policies.

Not long ago, the central bank limited the possibility of trading in the Tether market on domestic platforms in order to manage the currency market. As of today, rial settlement by cryptocurrency platforms with people is practically blocked. The decision to stop Tether trading at night and limit Rial settlement, before the basis for dealing with the platforms, needs to be evaluated: has limiting the trading hours been able to reduce the volatility of the dollar? Has the cost of this intervention been measured for users and market liquidity? A policy that is implemented with the aim of controlling emotion should be evaluated with a measurable result; Mere execution of the command is not a proof of its success.

From the 8th of Mehr, Tether trading restrictions were announced on a number of platforms, including the suspension of trading from 21:00 to 9:00 AM and the daily purchase limit of 2,000 Tether. The declared goal was to control the emotions of the currency market. Now the main question is that the choice of this tool is based on what analysis of the Tether and dollar market relationship and what criterion has been determined to continue or stop it.

Price reports, at least, do not confirm the simple narrative of "tether containment equals dollar containment". At noon on the 8th of Mehr, before the beginning of the night restriction, the dollar rate was reported at 254 thousand 570 tomans. On the morning of October 18, the official media recorded the dollar rate at 267 thousand 500 tomans. It means about five percent higher. This comparison does not specify the reason for the increase, but it shows that simply imposing restrictions on the Tether market cannot be considered as the stabilization of the exchange rate.

There are also examples of lower Tether prices. On the 9th of October, one day after the beginning of Tether market restrictions, Tether was registered at 254,550 Tomans and Azad Dollar at 255,500 Tomans. This difference was repeated many times with much higher numbers when the dollar rate was higher than Tether.

A clear interpretation of this evidence is that a lower Tether price does not guarantee a lower dollar. In the same way, the increase of the dollar after the market closure alone does not prove that the closure was the cause of the increase. Political news, currency supply and changing expectations should be reviewed simultaneously. Besides, the simultaneity of banknote supply and Tether limit makes it difficult to separate the effect of these two measures.

From a trading mechanism perspective, there is an observable risk: a market stop does not necessarily eliminate demand and may shift the timing of its occurrence. If buy orders pile up during off hours, the reopening could face a concentration of demand. Approaching the stop hour may also lead some users to make a hasty decision.

The issue of market size is also important. In an economy with a population of about 90 million people and extensive foreign exchange needs for imports, production and foreign trade, attributing the direction of the dollar to the Tether market cannot be defended without providing evidence of the market's share and effectiveness. The central bank should explain on what basis it considers restricting Tether transactions to be an effective tool to curb a market of this size. On the other hand, the central bank's missions are clear. Article 3 of the Central Bank Law lists inflation control, stability and health of the banking network, support for growth and employment, and helping to maintain the value of the national currency among the goals of this institution. Therefore, the central bank must have more important priorities to maintain the value of the national currency than entering into an endless conflict with platforms.

In the conditions of subsistence pressure and threats to economic resilience, decisions should be made with more sensitivity to side effects. Limited access to funds can create new concerns about liquidity and fuel impulsive behavior. The policy maker must explain why the chosen means is the least expensive way to achieve the goal. Publishing impact assessments, examining alternatives, and quickly revising low-impact decisions is part of the responsibility to maintain public trust. Market calmness is enhanced by increased predictability and responsiveness; Not just by shortening trading hours.