Reliance on Hawala networks erodes the Central Bank of Iran's (CBI) ability to track capital flows. These transactions occur outside formal ledgers. The state loses visibility into the actual volume of foreign currency entering or leaving the country. This blind spot hampers efforts to manage inflation or stabilize the Rial.
Shadow markets now dictate the exchange rate. When the official rate diverges sharply from the Hawala rate, price signals distort. Businesses set prices based on these informal benchmarks. Volatility becomes a permanent feature of the cost of living. The gap between official and street rates creates distorted incentives for importers.
Transparency vanishes. These networks ignore the KYC (Know Your Customer) protocols demanded by international bodies like the FATF. This creates an open door for money laundering and illicit financing. While the system keeps trade breathing, it hollows out formal financial infrastructure. The economy operates on trust-based handshakes instead of regulated monetary policy. Long-term growth suffers when the state cannot accurately measure its own money supply.
