The Islamic Republic News Agency recently reported that Iran would begin accepting payments from its trading partners in gold. Central bank Governor Mahmoud Bahmani announced the change, saying that Iran will accept the precious metal from any country. Financial experts say this move reinforces the universal currency and store of value aspects of the metal, which continues to be a popular global commodity.
Iran already allows its trade partners to pay for oil and other products in their native currencies. It has also accepted payment in the form of goods from both India and China. It will now take payment in gold, whose price has now rallied for 11 consecutive years. Investors have turned to the metal to hedge inflation as their own currency declined. Iran joins central banks worldwide that are already using the metal as a store of value.
The controversial nature of the Iranian nuclear program led the U.S. and European Union to impose sanctions upon the country, restricting financial transactions and trade. These nations believe that the program is a mask for the development of atomic weapons. Iran has denied the accusations, saying that its nuclear development is strictly for civilian purposes. An official with the Obama administration recently stated that Iran’s move to accept gold payments for trade reflects the inability of the country to engage in standard financial activity.
The EU will ban transfers of precious metals, including gold, in an attempt to block Iranian efforts to evade sanctions. A U.S. official reported that the latest Iranian efforts would not exempt trade partners from regulations within the U.S. National Defense Authorization Act. These include freezing assets held by the Central Bank of Iran and imposing sanctions on financial institutions overseas that participate in arms-length transactions with the bank.
Shanghai Metals Market analyst Wei Chisan told Bloomberg that Iran is accepting gold payments because the precious metal has long represented an “alternative currency [according to Bloomberg].” Central banks purchased 439.7 metric tons of the metal during 2011, a record amount. The World Gold Council reports that these institutions will continue the trend this year. India and China gold demand currently exceeds that of all other countries on the planet. Though demand has recently waned, it is expected to rebound in the near future.
On March 5, Israeli Prime Minister Benjamin Netanyahu will travel to the White House to meet with U.S. President Barack Obama, while speculation grows that Israel is planning a military strike against nuclear facilities in Iran. According to a recent Reuters poll, most Israelis oppose the strike or would only be in favor of it with U.S. agreement. Skyrocketing crude oil prices are one result of this increased tension, as oil futures in New York have already risen 8.3 percent this year, reaching $107.06 per barrel.
Israel believes that if Iran is armed with nuclear weapons, its own existence will be threatened. The country has cautioned that the time window for effective military action against nuclear facilities in Iran is limited. Reuters reported that U.S. officials think it is premature to use military force against Iran. They believe this move could create instability throughout the Middle East.
On Tuesday, Mr. Bahmani made it clear that the dollar is not the only currency accepted by his country. By reducing its dependence on dollar-based transactions, Iran lessens the financial sting of sanctions imposed upon it. Abbas Araqchi, an Iranian deputy foreign minister, informed the Fars news agency that Iran has found ways to get around the sanctions through trade with other countries. In addition, the Iranian government has banned imports with Iranian-made equivalents, reports reformist daily Etemad.
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