Mon Dec 18, 6:45 AM ET
TEHRAN (AFP) - Iran has announced it would replace the dollar with the euro in foreign transactions and state-held foreign assets, in an apparent response to mounting US pressure on its banking system."The government has ordered the central bank to replace the dollar with the euro to limit the problems of the executive organs in commercial transactions," government spokesman Gholam Hossein Elham told reporters Monday.
"We will also employ this change for Iranian assets (in dollars) held abroad."
Amid US allegations that Tehran funds militant groups and is seeking a nuclear weapon, reports have suggested the US treasury has put major pressure on European banking giants to halt transactions involving Iranian clients.
Bankers in Iran have complained in recent weeks that it was becoming increasingly difficult to receive Iranian-held money denominated in dollars from European bank accounts.
They said that this was because of US pressure on European banking giants not to allow dollar-denominated funds to be sent into, or out of, the Islamic republic.
Elham implied the move would apply to oil revenues from the world's number four crude producer, although it would be difficult for Iran to force oil buyers to pay for all of its crude oil in euros.
"Foreign income sources and oil revenues will be calculated in euros and we will receive them in euros in order to put an end to our dependence on the dollar," Elham said.
In reality, Iran could still receive payment for oil in dollars and then convert it into euros for the state budget.
The move comes amid mounting pressure from the United States for the UN Security Council to agree sanctions against Iran over its controversial nuclear programme.
Elham added that Iran's budget would in future be calculated in euros.
"Until now the budget has been calculated according to revenues in dollars, but this calculation will now change," he said.
Economy Minister Davoud Danesh Jafari had already said in November that Iran would carry out transactions with currencies other than the dollar and its use of the greenback would drop to a minimum level.
Morteza Tamadon, a member of the government's budget and planning commission, said the government was looking to reduce its dependence on the dollar due to the greenback's recent slump as well as because of US pressure.
"Iran wants to reduce this vulnerability," he said, adding that the most reasonable option for the government would be to use a basket mixing both currencies.
"This is a political manoeuvre as a reaction to the US ban on dollar transactions with Iran," said leading economist Mohammad Reza Behzadian.
However he cast doubt on whether Iran would ever be able to demand that all foreign exchange payments for its oil be made in euros.
"Iran has said that 60 percent of oil sales are already being carried out in dollars. I suppose the government would keep the remaining amount in dollars because it has to.
"The exchange of petrodollars into euros would be very costly for Iran, inflicting high money loss during the procedure. The dollar is very much preferred by foreign sellers."
"It's mainly a political move," Investec analyst Bruce Evers told AFP in London.
"But also they may feel, possibly rightly so, that the euro is a stronger currency, and that with the dollar as weak as it is they're losing out and it could help them recoup some of the lost revenues."
At the Singapore G7 summit of the world's most industrialised nations in September, US Treasury Secretary Henry Paulson called for a tough stance from the world's financial leaders against Tehran.
He said the United States had evidence that major banks had become inadvertently implicated in terrorist financing, adding that US authorities were therefore engaged in an "educational" campaign.
The United States broke off relations with Iran after the 1979 storming of the US embassy in Tehran by student radicals, and ties have remained frozen ever since.
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