Iran government dumps dollar for euro

The Iranian government will now use only euros in financial exchange transactions. The government had previously suggested all OPEC states abandon the dollar for oil transactions. Iran is the fourth largest oil producing state.

“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,” said Gholam Hossein Elham, a government spokesman.

This action will devalue the dollar because less people will need to purchase dollars to purchase oil. When people reduce purchases of any product, whether it be computers, fruit or currency, the price of the product falls. It’s best to think of the dollar as a product, though an imaginary one, to understand why the value will fall and why the dollar has a price, just like real products. You can sell and buy the dollar and the price of the dollar can fall and rise.

By moving to the euro, Iran only slowed the devaluation of the money it receives in exchange for oil, since the euro is also an mythical product with no value. Iran would be better served by requesting a real product in exchange for oil, another real product.

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