FX chief of Central Bank of Iran arrested as sanctions loom

Some emerging markets are excellent for FX brokerages, and some are well worth avoiding. Here is why.

One of the beneficial aspects of the method by which FX trading is conducted is that due to its electronic, cross-border nature, new and emerging markets can be easily sought.

Those with established businesses have the luxury of maintaining their businesses very successfully within established, well organized Western markets, as a result of their commitment to evolution, backed up by expertise.

Currently, however, a very noticeable shift toward emerging markets has occurred, especially those which have not been the focus of retail FX brokers previously, the intention being to attract a young, enthusiastic client base in previously uncharted territory.

The Middle East and parts of central Asia have been relatively isolated over recent years, with a few local firms in the United Arab Emirates and the former Central Asian Countries serving specific client bases with very little influx.

If anything should dissuade any firm from doing business in some of the less politically stable regions, it is the regular citations of senior government officials or central bank executives responsible for national policy and distribution with regard to foreign currency due to corruption or extortion.

During the course of last night, a judiciary spokesperson in the Islamic Republic of Iran publicly stated that Ahmad Araghchi, the Vice Governor of the Central Bank of Iran who is in charge of FX, was arrested along with several unnamed individuals, including a government clerk and four currency brokers.

Rather unusually, considering that Iran is a nation without free press and the revelation in the media that a senior Central Bank official has been arrested on suspicion of embezzlement is quite surprising, however the incident was also reported on television late last night by IRIB, which is a state-owned broadcasting entity, citing Central Bank spokesperson Gholam-Hossein Mohseni as the person who made the incident public.

The arrests come as Iranians brace for the reimposition of US sanctions on Tuesday, following Washington’s withdrawal from a multinational nuclear deal with Iran, and at the same time sizeable protests continue around the country, driven by concerns over water shortages, the economy and wider anger at the political system.

The government of President Hassan Rouhani has also faced heavy criticism from conservative opponents, who have demanded action on corruption and renewed efforts to rescue the economy. Yesterday, his cabinet announced it was looking toward easing foreign exchange rules, undoing a disastrous attempt to fix the value of the rial in April.

The April decision – combined with fears over US sanctions – fuelled a run on the currency that saw it lose more than half its value. Grand Ayatollah Hossein Nouri-Hamedani, one of the country’s top religious figures, said “economic corruptors” must face justice.

“People are upset when they hear that someone has embezzled billions while other people are living in tough conditions,” he said in a speech, according to the conservative Tasnim news agency. Mr Araghchi, a nephew of deputy foreign minister Abbas Araghchi, was reportedly fired by the new governor of the central bank on Saturday, apparently over his handling of the currency crisis.

Corruption and state-organized criminal activity are two of the most destabilizing factors with regard to national currencies, and this is no exception. The new proposals will allow the reopening of high street currency exchange bureaus that were shut down in April, although they will face stricter monitoring.

Essential items will still be available at the official government exchange rate of around 42,000 rials to the US dollar, while other importers will negotiate rates with exporters.

A similar situation has been present in Nigeria for several years, in which the Naira has been subject to three rates, one for the privileged government officials, one for the banks and another for the black market, operated via FX bureaux, most of which have been targeted for closure by the government.

Recently, FinanceFeeds reported that Egypt’s government had closed several deliverable FX bureaux, and highlighted reasons why the country could well be a land of opportunity for retail FX brokerages, and indeed that is still something we stand by as the nation has a far more stable social and political environment than many surrounding nations, a large population of enthusiastic entrepreneurs and is unlikely to be on the receiving end of capital controls or sanctions at any point in the immediate future.

Nigeria’s IB network has been flourishing over the years, largely due to a population which does not trust the local financial system and wishes to make its investments and trading in major currencies (banned in Nigeria) and keep their accounts in stable nations.

If any retail firm seeks to onboard Iranian clients, it should perhaps look toward providing them a service in which they can trade with a reputable brokerage in a regulated Western region with majors and commodities, however with sanctions looking likely to be reinstigated, capital controls and inability to accept clients from the nation are imminent.

Thus, it can be deduced that brokerage should certainly look toward riding the wave of enthusiasm from willing investors in emerging markets, but to avoid the basket cases at all costs.

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