Tehran's street currency market is facing a wave of counterfeit US dollar transactions, with dealers offering hard currency at rates well below the open market price in schemes designed to extract high-denomination Iranian banknotes from circulation, IBENA reported on April 23.

Iranian authorities have not yet said the source of the fake cash circulating across the country which is causing growing numbers to shift to other currencies including the Dirham and the Euro, according to IntelliNews reports on the grounds. 

Dollars are being offered at IRR1.16mn-1.26mn per dollar ($0.77-0.84 at the official rate), significantly below the prevailing open market rate of around IRR1.5mn. Many of the transactions result in buyers receiving counterfeit notes, while others form part of organised operations to collect large-denomination Iranian bills, particularly the newly issued IRR10mn note.

Currently, online forex trading platforms are selling the US dollar at IRR 1,540,500, significantly below the sell rate, IntelliNews has discovered. 

Buyers are typically required to pay in cash, creating artificial demand for high-value banknotes. Authorities and analysts say the mechanism is being used to withdraw liquidity from circulation while bypassing formal financial channels.

Investigations suggest some networks channel the collected banknotes into cross-border settlements, limiting the flow of genuine foreign currency into Iran.

The sales risks are tightening supply in the domestic foreign exchange market and adding upward pressure on exchange rates at a time when the Iranian economy is already under severe strain from the US naval blockade and war damage.

Security forces recently arrested an individual described as a key operator in an underground currency network, seizing approximately $500,000 in counterfeit dollars along with fake gemstones and forged documents.

Traders told IBENA that large-denomination Iranian notes are being transferred to regional hubs, including Herat in Afghanistan, and routed onwards to Afghanistan and Pakistan, where they are allegedly used in settlements linked to fuel smuggling operations. 

With fuel prices in neighbouring markets significantly higher than in Iran, smuggling margins have widened, increasing demand for untraceable settlement methods.

IntelliNews spoke with analysts in Tehran who wished not to be named, who warned that the combination of counterfeit currency, cash extraction and informal cross-border flows posed a direct challenge to Iran's monetary stability, which is already under massive strain from persistent devaluation. 

Experts urged the public to avoid street-level currency trades, saying that deals offering apparently profitable rates increasingly carry high risks of fraud and financial loss.

According to state-controlled Tasnim News Agency, officers in the city of Aligudarz uncovered a hideout containing around €225,000 and $50,000 in counterfeit banknotes.

The operation followed a suspicious transaction and subsequent surveillance, with police acting under judicial authorisation to raid the premises, News.az reported.