Tehran to establish new limits on cash withdrawals

Friday, January 22, 2010

TEHRAN: Iran will begin Thursday limiting the amount of money individuals can withdraw daily in what officials say is a measure to battle money laundering but analysts see as an attempt to curb inflation by slowing the flow of money.

Deputy Finance Minister Asghar Abolhasani said withdrawals of more than 150 million rials (roughly $15,000) per day would be banned “to combat money-laundering,” state radio reported.

The decision means an account holder cannot withdraw per day more than that amount in cash, but can still write checks for larger amounts.

Finance Minister Shamsoddin Hosseini told a conference Wednesday that “controlling the cash” would serve to battle money-laundering and financial terrorism.

But analysts said the restriction was apparently aimed more at combating double-digit inflation in a country where the economy is largely in shambles in part from sanctions and what critics contend are President Mahmoud Ahmadinejad’s free-spending populist policies.

“It’s a measure to try to contain prices rises, or inflation, and we have to wait and see if this, with additional measures, will contain price pressures in Iran,” said John Sfakianakis, chief economist with Banque Saudi Fransi-Credit Agricole Group in Riyadh, Saudi Arabia.

Ahmadinejad said Tuesday his government plans to lop off zeros from the country’s currency, arguing that the value of the rial was grossly undervalued.

That change was also seen as an attempt to rein in inflation, which some analysts say is at least twice as high as what the government official reported at 13.6 percent annually in December. Inflation had peaked at around 30 percent in 2008, but the government claims it has since steadily fallen.

Inflation remains a pressing issue in the country where political tensions are running high over the disputed June presidential election that gave Ahmadinejad a second term.

In November, state-run Press TV’s website quoted a top central bank official as saying liquidity rose sharply during the first half of the Iranian calendar year and the bank had taken steps to slow the growth rate.

Iran’s Parliament and the country’s constitutional watchdog, the Council of Guardians, recently signed off on Ahmadinejad’s plan to cut fuel and food subsidies, with the money instead to be channeled directly to the poor.

Concerns are rife that the move will spark further unrest in the country and fuel inflation. Experts have warned cutting subsidies on fuel and food would lead to 60 percent inflation in April, the month when the cuts are slated to go into effect.

As part of the new restrictions on cash withdrawals, the government ordered banks and currency exchange offices to report all their hard-currency transactions.

Officials say the move is part of an effort to crack down on money laundering and other shady currency deals, as well as boost financial transparency in the country.

Source: The Daily Star.
Link: http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=110938.