Iran's central bank on Saturday drastically devalued the national currency's fixed subsidized rate against the dollar, as the Islamic republic struggles to shore up its faltering economy.
The rial has lost more than two-thirds of its value on the open market since early 2012, when the United States and the European Union imposed harsh economic sanctions curbing Iran's ability to export oil and conduct financial transactions.
The central bank on Saturday was selling one US dollar for 24,779 rials at the subsidised rate available only to select importers to procure basic commodities and medicine, according to the bank's website at http://cbi.ir .
That rate was more than double the old rate of 12,260 rials for one dollar, which had been kept artificially low since January 2012.
The new "reference" rate is still far stronger than the dollar available to ordinary buyers and travellers at the unofficial open market, which was 33,200 rials per dollar at midday.
By increasing the so-called reference rate, the central bank scrapped its rate used at an "exchange center" that put goods importers in contact with exporters to exchange funds at a rate of around 25,000 to the dollar.
The exchange center, launched late last September, had managed to control the rial's free fall amid increasing international pressure on Iran.
Suspecting Iran's nuclear program has military objectives, Western powers have reinforced a raft of economic sanctions aimed at coercing it into cutting back on uranium enrichment despite Tehran's insistence its atomic ambitions are peaceful.
The sanctions have cost the country billions in vital oil revenues and left it struggling with a shrinking economy, raging inflation and high unemployment.
Saturday's development came after days of media reports and official denials about pending changes on the official currency market.
According to reports, the budget for the year ending in March 2014 – signed by outgoing President Mahmoud Ahmadinejad in mid-June but the details are not publicized – gave the central bank permission to increase the official exchange rate.
Ahmadinejad's critics accuse his government of misusing the now scrapped cheap dollar, and of failing to feed the market with sufficient foreign currency or provide funds earmarked for essential goods including medicines.
The price of medicine has risen sharply in the past year.
In June, the health ministry's Shams-Ali Rezazadeh said the price of domestically produced drugs was set to rise by at least 35 percent, while imported medicine would go up by an average of 90 percent.