Recurrent exchange rate shocks and Anfal in Iran

Abstract The Iranian economy under the Islamic Republic of Iran has experienced 9 exchange rate shocks since the 1979 revolution. In particular, the shocks intensified with the sanctions on Iran in 2011. Many econometric tests have identified the effects of shocks, but the institutional sources of these shocks are underexplored. The contribution of this paper demonstrates that the Iranian macroeconomic dynamics are shaped by institutional factors. Anfal, the exclusive property of res nullius by the supreme jurisconsult, and the Shiite political capitalism deriving from it, foster parallel institutions, specifically parallel public treasuries, and speculative (hoarding) behaviour among agents, which in turn cause recurring exchange rate crises. Different economic policies of fundamentalists and reformists in the Islamic Republic of Iran are critically assessed, and the importance of constitutional elimination of the religious public finance ( Anfal ) and the creation of a unified secular public finance system is discussed.