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NightWatch 20120126


For the night of 26 January 2012

Iran: The Tehran government devalued the rial today. Central bank governor Bahmani announced the new exchange rate will go into effect on 28 January in all banks. It will affect all transactions.

The new rate is 12,260 to the US dollar, compared to a posted rate last week of 11.296. Bahmani said the new dollar rate would be freely available - although on Wednesday he indicated only people who could prove an immediate need for foreign currency, such as travelers or companies importing foreign goods, would be allowed to buy.

"There will be absolutely no need to go to the open market to procure foreign currency. The banking system will meet all of the people's needs," he said on Thursday

The dollar has been sold by exchange offices for as much as 20,000 rials as the result of Iranians seeking to convert their savings into hard currency to maintain its value. Tehran also announced the criminalization of unofficial money trades.

On 25 January President Mahmoud Ahmadi-Nejad authorized banks to banks to raise the returns on deposit accounts up to 21 percent.

The move may help slow the rise in inflation, which has increased to around 20 percent. Iran depends on imported consumer and intermediate goods whose prices have risen.

Comment: The new rate represents an 8% devaluation according to banking experts, but is not likely to slow the flight to safe currency or help with international trade valuations. The need to devalue at this remove before the sanctions are in effect fully - the European Union's oil embargo will be in effect by 1 July -- portends significantly worse effects to come later in the year.

Iran can probably find other purchasers for its oil, but the sanctions on the banking industry related to oil sales and the ripple effects on prices raise the prospect of increasing internal stress. At this point, the sanctions do not seem to be generating social unrest, but the government's actions show it expects a crisis of confidence which it is attempting to control if not avert. Prices should rise in summer and are likely to be accompanied by civil unrest.

Syria: Syrian security forces moved to suppress opposition in Douma, a town north of Damascus, a Syrian officer told the press on 26 January. The opposition Syrian Observatory for Human Rights group said security forces detained 200 people in the town and the gunfire was close enough to be heard in Damascus during the night.

Comment: Government forces executed operations in Douma several times in 2011. Its proximity to Damascus compels the government to keep activists unsettled. Violent internal instability is centripetal in that the opposition must attempt to take the center of power, Damascus. The government's appreciation of this explains its tight control in Damascus and repeated efforts to suppress opposition in nearby towns and suburbs of the capital.

One of the clearest signs the government is in danger of collapse would be the occurence of sustained violence in Damascus. Aside from an occasional terrorist-type bombing, government control of the center of power appears intact.

End of NightWatch for 26 January.

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