Iran's rial currency plunged 10 percent to a new record low on Monday as the EU imposed a ban on Iranian oil imports, posing a major headache for President Mahmoud Ahmadinejad who has said sanctions will not hurt the economy.
European Union governments agreed to an immediate ban on all new contracts to import, purchase or transport Iranian crude oil and petroleum products, EU officials said, in a move aimed at ramping up pressure on Tehran to curb its nuclear activities.
The ban, which comes on top of new U.S. sanctions aimed at hampering Iran's oil exports around the world, sent Iranians rushing to convert their savings into hard currency as efforts to curb black market trading failed.
The price of dollars rose 7 percent from Saturday, the last working day, to 20,500 rials, up 15 percent from last week. It has rallied almost 50 percent from a month ago, according to the financial website Mesghal.
The rial's slide is likely to exacerbate inflation which is already at 20 percent and rising, as Iran is heavily reliant on imported consumer and intermediate goods whose prices have surged as the rial has depreciated.
Monday's black market dollar price was 80 percent more than the central bank's official "reference rate" of 11,300 rials - a rate not available to normal Iranians or most importers.
GOLD A SAFE HAVEN
The rial had been weakening for several months after a decision last April to reduce interest rates on bank deposits to below the inflation rate. However, new economic pressures from Washington and Brussels have greatly accelerated the problem.
The EU said on Monday it was also freezing the assets of Iran's central bank and was banning trade in gold and other precious metals with the bank and state bodies.
Iranian media said policies aimed at stemming the currency slide had had the perverse impact of driving dollar prices higher as Iranians were forced to seek hard currency through touts rather than official exchange offices.
A government demand that exchange offices sell dollars at no more than 14,000 rials has meant they stopped selling at all while blackmarket prices soared along with that of gold coins which, like hard currency, are seen as a safe haven for wealth during times of economic uncertainty.
Earlier this month, the state banned people from trading currencies outside officially licensed exchange offices - where rates can be subjected to government controls - and threatened to prosecute people carrying foreign cash without a receipt to show they bought it legally.
"This is why the price of gold coins is increasing rapidly, people cannot find dollars at the official rate ... so they invest in gold coins," Khorasan daily quoted a member of Tehran's gold, jewelry and silver industry association, Hossein Pendarvand, as saying.
"The fact that the central bank is now treating trade in dollars on the open market as smuggling is one of the reasons demand for gold coins has increased," Pendarvand said.
Mesghal put the price of the Iranian Azadi coin, produced by the Central Bank of Iran and weighing 8.133 grams, at around 10,100,000 rials on Saturday, up 3,150,000 rials, or 45 percent, on last week.
Iran is the world's No. 5 oil exporter and analysts say sanctions on the country's oil income will put further pressure on the ailing economy even though Ahmadinejad has said they will not hurt the economy.