Iran's rial sank about five percent in trading against the U.S. dollar on Monday, after the central bank said it would change the currency's official exchange rate, prompting fears of another devaluation as the economy suffers from international sanctions.
Reuters reported that the rial was trading in the free market at around 21,510 per dollar, down from about 20,440 on Sunday.
The report said that most dealers in Tehran's major currency trading district stopped selling dollars on Monday and removed signs from windows advertising their rates. The local Mehr News Agency said the rial fell as low as 22,000 before partly recovering to 21,400.
Central bank governor Mahmoud Bahmani said on Sunday he would announce a change to the government's “reference rate” of 12,260 rials to the dollar “within the next 10 days.”
He did not elaborate, but Iranian media speculated the new reference rate might be between 15,000 and 16,000 rials. Most Iranians are unable to obtain dollars at the official rate and must instead use the free market, which is far more expensive.
Iran's economy has been hit hard in the past year by sanctions imposed over its disputed nuclear program. The country has largely been cut off from the international banking system and the rial has lost about half its value against the dollar in the free market.
In January it was reported that the Iranian currency sank by 80 percent in just one month, after the European Union slapped sanctions on oil imports. The rate in December was 10,700 rials to the dollar.
Last week, the United States Congress passed a new package of sanctions against Iran. The sanctions aim to punish banks, insurance companies and shippers that help Tehran sell its oil. A day earlier, President Barack Obama announced sanctions against foreign banks that help Iran sell its oil, specifically citing China's Bank of Kunlun and an Iraqi bank.
The commander of Iran’s Revolutionary Guards, Mohammad Ali Jafari, admitted last week that the main threat to his country is the “soft war” being waged against it.
Soft war is a term which usually describes steps such as sanctions, cyber warfare and espionage activities.