Police clash with protesters in Iran as currency continues to plunge

Police threatened merchants who closed their shops in Tehran's main bazaar and launched crackdowns on sidewalk money changers on today as part of a push to halt the plunge of Iran's currency, which has shed more than a third its value in less than a week.

The measures underscore the serious concern by officials facing one of the most potentially destabilizing scenarios, which has been partly blamed on the fallout from Western sanctions over Tehran's nuclear program.

Public anger has mounted over a punishing combination of a falling currency and rising prices, which have put some staples such as chicken and lamb out of reach of many low-income Iranians.

The shrinking rial also has rekindled bitter internal political feuds between President Mahmoud Ahmadinejad and his powerful rivals, who claim the crisis has also been fed by misguided government monetary policies.

Iran's currency hit a record low of 35,500 rials against the US dollar Tuesday on the unofficial street trading rate, which is widely followed in Iran. It was about 24,000 to the dollar a week ago and close to 10,000 rials for $1 as recently as early 2011.

Exchange houses were closed today and currency websites were blocked from providing updates.

In a potentially serious showdown, merchants appeared to stage widespread closures in Tehran's bazaar, the traditional business hub in Iran's capital. The sprawling bazaar has played a critical role in charting Iran's political course — leading a revolt that wrung pro-democratic concession from the ruling monarchy more than a century ago and siding with the 1979 Islamic Revolution.

The semiofficial Mehr news agency reported Wednesday that the bazaar was closed for security reasons. The agency later quoted police Col. Khalili Helali as saying that bazaar was not officially closed, but noting that authorities will take action against many merchants who have shuttered their shops.

"The Tehran bazaar is not closed. Police will deal with the guilds that have closed their shops to cause (economic) disruption," Mehr quoted Helali as saying.

Meanwhile, anti-riot police patrolled streets in central Tehran where freelance money dealers work. There were unconfirmed reports of arrests, but Iranian officials have issued no formal statements.

The currency's nosedive has added to the burdens on Iran's economy as it struggles with tougher sanctions targeting its crucial oil exports and measures blocking it from key international banking networks. The U.S. and its allies have imposed the measures in attempts to force Iranian concessions over its nuclear program, which the West says is aimed at developing atomic weapons. Tehran insists the program is for peaceful purposes.

The rial's sharp decline is attributed to a combination of Western sanctions and government policies — such as fueling inflation by increasing the money supply while also holding down bank interest rates. That prompted many people to withdraw their rials to exchange for foreign currency over the past months.

On Tuesday, Ahmadinejad insisted Iran's economic underpinnings were sound, but blamed the rial's tumble on "psychological pressures" from the sanctions and currency speculators.

He described the sanctions as part of a "heavy battle" that has succeeded in driving down oil exports "a bit," but he gave no precise figures. Some oil analysts estimate exports have fallen by more than 30 percent since July, when the 27-nation European Union halted purchases of Iranian crude.

Many economists and experts have accused the government of deliberately provoking an increase in dollar rates in order to meet its own budget deficit. The government earns more than 90 percent of Iran's overall foreign exchange revenues as a result of oil sales. Higher dollar rates bring higher rial earnings for the government.

It could also bring more political heat on Ahmadinejad, who has been left severely weakened after unsuccessfully challenging Supreme Leader Ayatollah Ali Khamenei over the powers of the presidency. Ahmadinejad now could face increasing domestic attacks before elections, including possibly being called before parliament for questioning over the currency upheavals.

Earlier this year, Ahmadinejad became the first president hauled before the 290-seat parliament for questioning over his public feud with Khamenei.

AP