Legal regulation of the currency exchange market in Iran: a Hayekian analysis

Abstract

ABSTRACT Hayek contends that good money is not available when the central bank is under political pressure, and the government dictates its decisions. As an illustration, the Central Bank of Iran, in accordance with the government’s concern, has actively interfered in the currency market to maintain the value of the money. This attempt was weakened by the U.S. sanctions. In another vein, legislators modified Combatting the Smuggling of Commodities and Foreign Exchange Law to tighten the freedom of currency exchange. The law imposes severe penalties on those who keep, carry, and sell currencies that do not fall within the definition of legal currency exchange. This paper contends that although such measures might temporarily suppress demands, they are unlikely to make a controllable currency market. Based on Hayek’s theory of money, the government’s budget deficit and unrestrained printing of money have also exacerbated the situation that promotes bad money.