The impact of currency fluctuations on trade

Currency exchange rates are determined by two main mechanisms. The first mechanism is the system of supply and demand in free markets, where governments and central banks do not intervene in setting the rates. The second mechanism is common in countries like Iran, where the government and the central bank intervene in determining the exchange rate for economic, political, and social reasons. The exchange rate acts as a key indicator in international competitiveness and has a significant impact on the development of the macroeconomy and its fundamental variables. In Iran, the exchange rate and related policies have always been one of the major economic challenges. Changes in the exchange rate can affect economic growth, investment, imports, and exports, and its fluctuations create uncertainty in international trade.

Various factors influence the exchange rate in Iran, including internal and external political challenges such as sanctions, regional tensions, domestic protests, government budget deficits, and anti-inflationary policies. These factors directly impact the competitiveness of producers, production, employment, and inflation. A change in the exchange rate can help improve non-oil exports and the trade balance, but in the long term, it may increase production costs and harm companies. Additionally, these changes can affect the process of savings and investment and disrupt the optimal allocation of resources.

In crisis conditions, different currency policies are applied, and an increase in the exchange rate may be seen as an opportunity to boost exports. If the depreciation of the national currency is monitored by the government and carried out with appropriate financial controls, it can have a positive impact on exports, similar to China’s approach to keeping its currency value low to increase exports. However, an increase in the exchange rate can lead to higher production costs and domestic liquidity shortages, fueling inflation. These changes can also affect foreign currency repayments.

Given Iran’s specific conditions, including sanctions, severe currency fluctuations, political situation, and international relations, as well as the direct effects of these factors on international trade, it is recommended to seek advice from experienced consultants in this field before starting trade with foreign countries.