From Janet Tavakoli's book CREDIT DERIVATIVES:
I lived in Iran when the Shah was overthrown in 1978 shortly after Khomeini
returned in 1979. The new government wanted to prevent flight capital from
leaving the country. It also wanted to prevent sympathizers to the Shah’s
regime from getting out of the country alive. It further wanted to preserve
a sense of economic normalcy to the outside world.
There was nothing normal about it. Citizens, thought to be beneficiaries of
the Shah’s largess , were dragged out of their homes in the middle of the
night. Often their accuser was a jealous neighbor. Kangaroo courts called
“komites” condemned citizens to death. Their assets were confiscated.
In the panic to leave the country with some of their wealth, citizens found
that although there was an official exchange rate of seven Toman (10 rials)
to the US dollar, there was no means to convert money. Banks were closed
much of the time. The government put a further restriction on conversion of
currency. Citizens could take only $1000 in US currency out of the country
and could take only a suitcase of clothing. The idea was to prevent citizens
from taking valuable carpets, now labeled national protected works of art,
out of the country.
Individuals found ways around these restrictions proving once again:
“Governments rise and fall, but the economy goes on.” A black market for
hard currency quickly sprouted up. There were severe penalties if one were
caught exchanging money. Nonetheless, people became cleverer about the
exchange.
Merchants were given dispensations to do business. Importers would fake
invoices to reflect that they had increased orders by 100%. In reality,
they hadn’t doubled their orders with merchants in Europe. They created
this fiction so that they could exchange currency for Deutsche marks or
dollars. In this way, they accumulated hard currency deposits in Europe.
Land and housing values went to almost zero in the wake of the upheaval.
This was the time to pick up bargains on the back of someone else’s crisis.
If you wanted land or a nice house and you had hard currency deposits, you
could strike a hard bargain.
People purchased diamonds and gem stones, which were portable currency when
they were fleeing the country. People bartered land, Persian carpets, and
homes for portable, concealable wealth.
Importers didn’t have a problem faking their invoices. This raised no
suspicion. The population eagerly purchased freezer chests to keep their
meat frozen during the frequent electrical “brownouts” with the new
inefficient government. They purchased televisions, stereos, and
refrigerators as the only hard goods of value. Money was almost
meaningless, so why not have conveniences? Sales skyrocketed.
Coming Soon: http://www.youtube.com/watch?
(BN) Iranians Abandon Meat for Bread as Rial Freefall Sparks Pro tests
Iranians Abandon Meat for Bread as Rial Freefall Sparks Protests
2012-10-03 22:00:01.1 GMT
By Yeganeh Salehi and Glen Carey
Oct. 4 (Bloomberg) — Iran s freefalling currency is turning meat into
a luxury, sparking overnight price surges and spurring shoppers to stockpile
goods.
Most of my customers just look at products behind the window and pass,
said Behrouz Madani, 42, who owns a butcher shop in northwest Tehran. I see
them going to the next store, which is a bakery, to feed their families with
bread.
Iran s rial is in a tailspin, having lost more than half of its value
against the dollar in street trading in the past two months as U.S. and
European sanctions aimed at curbing the country s nuclear program bite. Riot
police yesterday fired tear gas and sealed off parts of downtown Tehran
after the currency s plunge triggered street protests.
Security forces were also sent to the city s bazaar after shopkeepers
refused to open. The inflation rate, estimated by Parliament Speaker Ali
Larijani at 29 percent last week, has accelerated to the point where the
price of milk in Tehran rose
9 percent yesterday.
The economic situation has reached a point where it becomes almost
impossible not to show reaction, said Anoush Ehteshami, professor of
international affairs at Durham University in the U.K.
The rial is falling as sanctions eat into Iranian oil exports and
foreign currency earnings. The currency dropped about 18 percent on Oct. 1,
reaching 35,000 to the dollar on the unofficial market. The currency traded
at 36,100 yesterday, the state-run Mehr news agency said, though traders in
Tehran said most exchange houses have halted dealing in the greenback. That
compares with the official value of 12,260 rials per dollar set by the
central bank.
Future Angst
Most Iranians can t access that rate apart from some importers of
essential goods such as medicines, meat and grains.
People are nervous about tomorrow and next week because they don t
know how much more expensive things will be, said Mostafa Daryani, 52,
whose family owns a Tehran supermarket chain. They only buy their daily
needs and ignore most of the things that are not urgent for daily life.
Instead of one bottle of milk, they buy two.
Prices of home appliances have doubled in the past six months and some
shop-owners prefer to hoard goods rather than sell them in the hope that they
can get higher prices in the future, said Yahya Ebrahimi, 48, who owns an
electronics store in central Tehran. Merchants are increasingly using the
dollar value of items as the basis for sales, he said.
