Iran to Switch from Dollar to Euro

Written by Adam Gonn

Iran will switch its foreign currency reserve from the U.S. dollar to the Euro.

Iran’s President Mahmoud Ahmadinejad has ordered that the country change the dollar with the euro in its foreign exchange accounts.

The Iranian Central Bank is estimated to cut its interest rates for the foreign exchange reserve from 12% to 5% making it cheaper for the Bank to acquire foreign currency.

"They have been talking about switching their foreign currency reserve from the dollar to the euro for a while now" Dr Ali Ansari, Director of the Iranian Studies Centre at the School of International Relations at St Andrews University in Scotland, told The Media Line, "but it makes them more dependent on the euro and the European Union." He said.

The decision follows an earlier call from Ahmadinejad for the Organization of Petroleum Exporting Countries (OPEC) to abandon the dollar as the standard currency for oil related transaction.

Though the world’s major oil producing capabilities are located outside the U.S. mainly in the countries that surround the Gulf, the price of a barrel of oil is set in dollars.

Despite a recent decrease in the value of the dollar, it still remains the most used currency for international trade.

Many countries in the Gulf region hold substantial amounts of dollar in foreign reserve, while Kuwait, Qatar, and the United Arab Emirates even have their currencies pegged to the dollar.

Analysts have suggested that by exchanging the dollar to the euro, Iran might be hoping to become less effected by the economic sanctions issued by the U.S.

American economic sanctions against Iran have been in force since the 1979 Islamic revolution in which the U.S backed Shah was overthrown and replaced with an Islamic republic.

According to the U.S. treasury, sanctions include "prohibiting U.S. involvement with petroleum development in Iran" and "virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited"

In 2000, some of the sanctions were softened allowing "U.S. persons to purchase and import carpets and food products such as dried fruits, nuts, and caviar from Iran."

Lately there have been media reports suggesting that President Barack Obama is considering increasing sanctions if Iran does not abort its nuclear program.

While Iran argues its program is strictly for the peaceful purpose of power production, the U.S. and many other western countries suspect Iran of nuclear weapons production.