Counterparties: Hyperinflation is so hot right now (in Iran)

October 5, 2012

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The official Iranian rial-to-US dollar exchange rate has been surprisingly steady over the past several months. That’s somewhat odd, because in 2010, the US and EU imposed tough new sanctions against Iran. But in recent weeks, says the Cato Institute’s Steve Hanke, “hyperinflation has arrived in Iran”:

Using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.

When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010.

Terrifyingly, the black-market (i.e., realistic) value of the rial recently dropped 60% in eight days. Tougher sanctions in part explain the sudden drop. The US, for its part, seems increasingly unwilling to allow Western financial institutions to pal around with the Iranian regime. Any further reduction in the access Iran’s central bank has to global financial markets would put further pressure on the rial.

Reuters’ Yeganeh Torbati explains how the regime’s attempt to dampen the effects of the currency crisis may have exacerbated the rial’s sudden collapse. As you might expect, the Iranian population is not taking these developments well: Al Jazeera reports that police have clashed with currency protesters in Tehran.

Further sanctions from the EU appear imminent. And that could cause a jittery Iranian regime to pull out the biggest bargaining chip it currently has by closing the Straight of Hormuz. More broadly, Jay Newton-Small rounds up the three most likely outcomes — regime change, a push for greater nuclear capabilities or economic collapse — none of which are particularly heartening. — Ben Walsh

On to today’s links:

Crisis Retro
Lockheed was too big to fail before it was cool – Liberty Street Economics

Primary Sources
US adds 114,000 jobs in September, unemployment rate falls to 7.8% – BLS

Jack Welch and a collection of NFP truther tweets – Zeke Miller
Jack Welch “is now unavailable for the rest of the day in meetings” – Bloomberg
“I wasn’t kidding”: Jack Welch defends his bizarre jobs numbers conspiracy theory – WSJ

How to run your hedge fund from a prison cell – Jonathan Weil
Since 2009, investors have pulled $138 billion from stocks/ETFs and put $1 trillion into bonds – WSJ
An interview with the world’s youngest, most charmingly oblivious hedge fund – Kevin Roose

End-of-life care: the wrong place to look for healthcare savings – David Wessel

Big Ideas
America’s need for more immigrants is the “most important economic issue of our time” – Adam Ozimek

Cognitive Dissonance
“We’ve hit that moment in the election when people begin to lose their minds” – Ezra Klein

Economic research vs. the blogosphere – Why Nations Fail

Meet Mira, the supercomputer that creates universes – Atlantic

Today in Rationing
There have been spot shortages of the Starbuck’s Pumpkin Spice Latte – WSJ

Brian Cox’s Scotch pronunciation guide – Esquire

EU Mess
Greece says it will run out of money by November without more aid – Reuters


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