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Foreign Exchange

FX research roundup 2: Iranian euro reserves – how much?

Iranian international news network PressTV released an article, ‘Iran restricting euro transactions’ on Wednesday.

“As the stagnant European economy weighs heavily on the euro forcing it into a downward spiral, the Central Bank of Iran (CBI) unveils a major plan for converting 45 billion of its euro reserves into dollar and gold ingots,” the network wrote.

Paul Day at Market Securities wonders where the €45 billion number comes from. He quotes the CIA World Factbook (not necessarily the unvarnished manual of truth itself) as estimating Iran’s FX reserves as $81.3 billion, in currency and gold, at the end of 2009. €45 billion would have been worth $65 billion at that time, implying that a massive 80% of Iran’s reserves were euro-denominated.

This is unlikely but not impossible: Iran has in the past offered oil contracts denominated in euros to European buyers and the Iranian oil bourse, which also offers euro-priced oil, was finally launched last October. But Simon Derrick at BNY/Mellon pointed to a quote from Iranian newspaper Jam-e Jam that would indicate that this might not now be official policy: “For those organizations which receive the most foreign currency, it is strongly recommended to minimize their trades in EUR,” he said. “The most vivid example of this issue is the significant reduction in the acceptance of EUR for the sale of Iran's oil.” The words “stable-door”, “horse” and “bolted” inevitably come to mind.

Derrick also questions the amount of reserves that Iran claims are held in euros. But a reduction of the order that Jam-e Jam argues for “to between 20 and 25% from a previous 55%” – and note 55% not 80% - would be very meaningful in any case.

Derrick takes into account other reports, from Reuters and the Financial Times, concerning changes to reserve portfolios globally and concludes: “We find little to really contradict our view that reserve managers must, at least, be reviewing their exposure to the single currency. Indeed, given the events of the past six months it would be amazing if they weren’t.”

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