There are signs that Iran will officially get rid of its official subsidized exchange rate — at 42,000 rial to one US dollar — by the end of the current Iranian year on March 20, 2022. If implemented correctly, the move could actually help the Iranian economy find a new balance, but the question is whether political and socioeconomic realities will allow the government to implement a sound approach to exchange rate policy. 

Iran currently uses three different exchange rates: the official subsidized rate, the market rate, and a rate controlled by the central bank available to importers and exporters of essential goods. The latter is known as the NIMA rate.

In February 2021, while Iran's parliament was debating the government’s budget bill, lawmakers proposed the elimination of the low exchange rate and the introduction of a new rate at 175,000 rials to the dollar, hoping that the new approach would unify the three existing rates. However, the government of then-President Hassan Rouhani rejected the proposal and lobbied strongly to continue using the subsidized rate, arguing that its discontinuation would lead to major inflationary impulses in the economy.

While opposing the parliamentary initiative, the Rouhani administration gradually shortened the list of import items that would be eligible to receive the subsidized rate. In fact, between May 2018 when the rate was introduced and September 2021, the list has gone from 25 essential commodities to only seven: wheat, corn, barley, oilseeds, edible oil, soybeans and pharmaceutical products including selected medical devices. In the last Iranian year, the government allocated a total of $9.6 billion to the importation of these items. Other essential commodities such as rice, meat, poultry, tea, sugar, paper and raw materials for key industries that used to be on the mentioned list are now being imported using the so-called NIMA rate that currently stands at about 270,000 rials to the US dollar. Consequently, one can already see the inflationary impact of removing many key food items from the list. This fact also explains why in the past year inflation in rural areas has been higher than in urban areas — the share of food products is higher in the household expenses of a rural family compared to an urban family.