Iran makes good on dollar threat
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Emerging Markets

Iran makes good on dollar threat

New central bank chief confirms revenue shift "almost 100% complete", accuses US of "financial terrorism"

Iran’s new central bank chief confirmed last night that the Islamic Republic has all but completed the process of diversifying its trade revenues out of the US dollar.

In a rare interview in Washington this weekend, Tahmasb Mazaheri added that the bank has taken further “active steps” in recent months towards diversifying its vast foreign exchange reserve holdings out of the US currency.

Mazaheri, who took over last month as governor following the resignation of Ebrahim Sheibany, told Emerging Markets that Iran’s longstanding commitment to stop using the US dollar to price oil is now “almost 100% complete”. The governor added that the use of the greenback “in almost any trade” has stopped.

“We have done our best to implement this diversification in both our resources, instruments and [foreign exchange] reserves, in order to get maximum benefit out of our assets,” he said.

Almost all of Iran’s European clients, and some in Asia, have agreed to make payments in non-dollar currencies. In global markets, oil is priced in US dollars per barrel.

Mazaheri’s comments came as oil prices broke through the $90-per-barrel mark on Friday for the first time, amid rising political tensions in the Middle East and the sharp decline of the dollar.

Iran’s intentions to diversify its foreign exchange reserve holdings out of the dollar – in response to US move to designate leading Iranian banks as “terrorist financiers” – were revealed by Emerging Markets in September 2006.

Mazaheri, who met with G8 leaders in Washington this weekend to press his case, also warned Western banks withdrawing from Iran – the world’s fourth largest oil producer with a population of 70 million – that they would not be welcome back.

“We Iranians have a very strong historical memory,” he said. “These banks need to know we will not forget and their actions could affect future cooperation.”

Some European bankers have said they are reluctantly reducing or cutting business with Iran, because of pressure from the US, and fear they may not get such easy access again to what is for many a profitable market.

“The pressure is effective and it is there,” said a European banker, speaking on condition of anonymity. “We were called and clearly told that if we didn’t change our mind on Iran, we’d better think twice about our US operations.”

Tension between Iran and the West rose further this weekend: Iran’s chief nuclear negotiator Ali Larijani, who has been the West’s main contact on Tehran’s atomic programme, announced his resignation.

And the US ratcheted up the pressure, by seeking to bring the Islamic Republic’s alleged support of terrorism centre stage during a meeting of G7 finance ministers.

US Treasury secretary Henry Paulson said after the meeting: “We discussed ways to deal with Iran’s pursuit of a nuclear capability and ballistic missiles, the regime’s vast financial support to lethal terrorist groups, and the deceptive financial tactics employed by Iran to evade sanctions and mask illicit transactions.

“We welcomed the recent statement by the Financial Action Task Force highlighting the significant threat Iran’s illicit conduct poses to the international financial system.”

Mazaheri hit back, accusing the US of “financial terrorism”: the US had failed to respond to Iran’s repeated requests to make public its alleged evidence against Iran’s financial institutions. “Everybody knows this is a bullying tactic. There is no substance to any of the allegations,” he said. “If there is any evidence it ought to be brought up and resolved.”

He said that the IMF should act as an arbiter of any evidence against Iran, but that so far, the multilateral has declined to play such a role. “The fear is that this is subverting the monetary and international system, at a time when the pace of financial globalization has made the world a global village – this is a very dangerous game.”

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