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    Posted July 23, 2010 by
    Tehran, Iran

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    Iran's Dwindling Reserves Seek Refuge In China's Yuan and UAE's Dirham


    BBC Persian Interview with Mehrdad Emadi, EU Economic Advisor (a link to the original Farsi-language interview can be found below)
    July 23, 2010

    Mehrdad Emadi - Both the European Union and the United States are strong proponents of the Sanctions and demanding high levels of transparency in Iran’s financial transactions that may potentially cover up any money laundering activity involving the regime elements. Tracking the exchanges of their own currency is much easier due to the sensitive nature of their banking system.

    Within this framework, Iranians have chosen to pull out of the Euro and Dollar market, in an effort to hinder the traceability process. Beside, this action serves as a signal to the West that their diplomatic ties with Iran are not as significant as perceived. This is completely a political posturing and not an economic move.

    Host – Political gesturing as well as an effort to circumvent the Sanctions.  What are the disadvantages for them?

    Mehrdad Emadi – Well, for one thing, when you exit the two most powerful and universally accepted currencies of the world and begin trading in currencies of lower value, you essentially narrow the margins of your own market value and the parameters of your trading arena. Your ability to maneuver on the world trading stage becomes far more limited, while your overall cost of trade substantially increases.

    Host – Are Yuan and Dirham the second best choices, after Euro and Dollar?

    Mehrdad Emadi – No they are not. If one must exit the Euro and Dollar market, then Japan’s Yen and the Swiss Frank would be better choices, as they too are globally recognized and widely traded throughout the world. We are moving instead to the Chinese Yuan, which cannot be traded outside China, as mandated by the Chinese Central Bank and trading laws. Therefore, all the currency exchanges will have to take place inside China, which will force Iran into China’s servitude. And any future political moves by Iran, not in accord with the Chinese’ interests, can be held by China as leverage to retreat from her end of the bargain or to flat out refuse Iran her dues when Iran needs or demands the funds.

    As for the Dirham; we must keep in mind that Dirham is heavily dependent on Dollar. Therefore, any fluctuation in the U.S. economic cycles, and even more importantly, the risks and fluctuations in the United Arab Emirates economy will directly impact the value of Dirham which will in turn affect Iran as the UAE’s trading partner. Therefore, by opting for Derham, not only Iran will not have distanced itself from the risks surrounding the U.S. Dollar, but also will be adding an additional layer of problems to its existing ones, making this an extremely bad move in order to ‘save’ Iran’s oil revenues. I can say beyond a shadow of a doubt, that within the next 6 months, Iran will realize what a costly decision it has been to move to Dirham.


    Original BBC Interview
    Related Article by BBC - (An Analysis of Iran's exit strategy from the Euro & Dollar Market)

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