Summary of JOIE Article by Mehrdad Vahabi, Université Sorbonne Paris Nord, Paris, France. The full article is available on the JOIE website.
Since the 1979 revolution, Iran has experienced nine major exchange rate shocks. Each crisis has destabilised the economy, weakened the rial, and fundamentally reshaped daily life. Unlike other countries that suffer occasional currency turmoil, Iran’s pattern is unusually persistent. While conventional explanations point to sanctions, oil dependence, or monetary mismanagement, the deeper causes lie in Iran’s unique institutional architecture—particularly the role of Anfal and the distinctive features of Shiite political capitalism.
Understanding Exchange Rate Shocks
Exchange rate shocks occur when a national currency rapidly loses value against foreign currencies, typically triggered by political instability, sanctions, or policy failures. For ordinary citizens, such shocks mean imported goods suddenly become more expensive, savings lose purchasing power, and inflation spikes.
Iran has endured such shocks since the early years of the Islamic Republic. In 1978, one U.S. dollar was worth approximately 7 tomans. By 1981, following revolution and the onset of war, it had reached 27. During the 1990s, inflation surged again, triggering social unrest including the Islam Shahr uprising of 1995. Since 2011, shocks have intensified dramatically: in just 14 years, the rial lost 60 times its value.
The Distinctive Character of Iran’s Currency Crises
While numerous countries face currency crises—from Turkey to Venezuela to Lebanon—Iran’s experience stands out in both intensity and frequency. Between 1979 and 2011, the rial depreciated 50-fold. After 2011, under intensified sanctions and mounting institutional strain, it collapsed an additional 60-fold in just over a decade. This trajectory suggests that factors beyond external pressure are fundamentally at work.
Failed Policy Experiments: Bureaucratic Control versus Market Mechanisms
Iran has oscillated between two basic strategies for currency management, both of which have proven unsustainable:
Bureaucratic controls involve fixing official exchange rates and rationing foreign currency through government channels. The clearest example came in 2018 with the Rouhani administration’s “Jahangiri currency,” which pegged the dollar at 4,200 tomans for essential imports. Designed to protect consumers, this policy instead generated massive corruption scandals as elites secured access to subsidized dollars for luxury imports.
Managed floating allows more market-driven exchange rate determination. In 2024, the Pezeshkian administration abandoned fixed rates in favor of a “negotiated currency” system. Within months, however, the dollar surged from 59,000 to over 94,000 tomans, while food inflation reached 80–100 percent.
Both approaches have collapsed under pressure. Official rate regimes fuel rent-seeking behavior, while floating systems trigger panic, hoarding, and speculation. Observing elites profit from crisis, ordinary citizens have increasingly joined the speculative cycle—purchasing gold, foreign currency, and real estate as hedges. This “speculative economy” becomes self-reinforcing and destabilising.
The Institutional Foundation: Shiite Political Capitalism
Most conventional analyses conclude with sanctions and policy failures. However, a deeper institutional explanation centers on Iran’s system of political capitalism—specifically, its Shiite variant.
In political capitalism, wealth accumulation depends less on productive activity than on access to political power. Economic and political elites overlap extensively, exploiting state connections to secure preferential exchange rates, contracts, and confiscated assets. Wealth derives not from innovation or competitive advantage but from political privilege. This dynamic generates capital flight, persistently low productivity, and environmental degradation.
Within this framework, exchange rate shocks are not merely disruptive accidents—they represent opportunities. Political elites benefit from volatility, leveraging insider information to engage in hoarding, speculation, and conversion of oil rents into private wealth. Ordinary Iranians, lacking such protection, attempt to replicate these strategies on a smaller scale.
The Central Role of Anfal
The institutional linchpin of this system is Anfal. Under Article 45 of the Iranian Constitution, Anfal encompasses vast categories of property: natural resources, confiscated assets, and oil rents. Critically, Anfal does not belong to the state apparatus but to the supreme jurisconsult (Velayat-e Faqih). This arrangement creates parallel financial systems:
- Bayt al-Mal: the official public treasury, overseen by government ministries and subject to budgetary processes
- Bayt al-Imam: the supreme leader’s treasury, operating beyond public accountability
Over time, Anfal has expanded through institutions including the Mostazafan Foundation, Astan Quds Razavi, and the Islamic Revolutionary Guard Corps (IRGC) business empire. A critical juncture occurred in 2006, when privatization initiatives transferred enormous state assets not to private enterprise but to clerical and military holdings. Rather than empowering a competitive private sector, this consolidation entrenched Anfal’s dominance.
This dual financial architecture systematically weakens the state budget while strengthening opaque clerical institutions. It also intensifies speculative dynamics: entities connected to Anfal enjoy privileged access to foreign exchange, imports, and resource rents, enabling them to profit from each currency crisis.
The Interaction Between Sanctions and Institutional Structure
Sanctions have undeniably mattered, but their impact must be understood through their interaction with Anfal-based institutions. When the United States tightened restrictions beginning in 2011, Iran’s Anfal-linked entities adapted by exploiting scarcity. They controlled access to foreign currency, imported goods, and oil revenues, using successive crises to entrench their economic position. Sanctions have thus not only damaged Iran’s economy but also strengthened the speculative institutional arrangements that thrive on volatility.
Political Failures Across the Spectrum
Both major political factions in Iran have proven unable to break this cycle:
Fundamentalists have favored strict controls, subsidies, and repression. Yet price fixing and rationing consistently breed corruption and smuggling networks.
Reformists have attempted liberalization and managed floating exchange rates. Without addressing Anfal’s institutional role or fundamental foreign policy challenges, however, these reforms have collapsed into panic-driven inflation.
Short-term interventions—food coupons, virtual gold sales, crackdowns on currency traders—have offered temporary relief without addressing structural causes. Even direct cash subsidy programs have become fiscally unsustainable as revenues contract and debts accumulate.
Structural Reform Requirements
Achieving lasting stability requires confronting the root institutional cause: the Anfal system itself. As long as Iran maintains dual treasuries—one ostensibly secular and governmental, the other religious and autonomous—exchange rate shocks will recur. A sustainable resolution would require:
- Abolishing the religious treasury (Bayt al-Imam) and integrating all revenues into a transparent, unified public budget
- Establishing a consolidated secular financial system accountable to parliamentary oversight and public scrutiny
- Coordinating monetary reforms with foreign policy adjustments, given that sanctions amplify underlying institutional vulnerabilities
Without such fundamental restructuring, Iran will remain locked in a recurring cycle of crisis, speculation, and deepening inequality.
Conclusion
Iran’s persistent exchange rate shocks are neither mere economic accidents nor simply the inevitable consequence of external sanctions. They emerge from a distinctive institutional configuration rooted in Anfal and the specific characteristics of Shiite political capitalism. This system fosters parallel treasuries, promotes speculative behaviour, and institutionalises political rent-seeking, rendering the economy structurally fragile.
Until Iran undertakes fundamental financial reform—unifying public finance under transparent, accountable secular control—exchange rate crises will continue to undermine economic stability and erode social prosperity.