Meanwhile, inflation rose just one point based on the CBI data, reaching 9.6%. Even if one considers the CBI figures an underestimation of the true rate of inflation, the methodology behind it can reasonably be assumed to be consistent.

When tabulating and indexing this data over a 12-month period, the acceleration of the rial’s weakening is immediately clear. The price of gold rose 30.15 points while the free market price of the dollar rose 30.75 points — nearly double the increase in the official exchange rate in the same period.

First, there is inflation, drawing on data reported monthly by the CBI. Second, one can track fluctuations in the housing market using the average price per square meter for residential real estate transactions, also reported monthly by the CBI. Third, one can include the rial price of 18-karat gold using the month-end price. Finally, one can compare the month-end official dollar exchange rate with the free market rate.

In his recent piece for Al-Monitor, Iranian business consultant Bijan Khajehpour looked at six drivers of the devaluation: first there are issues of management and policy at the Central Bank of Iran such as the longstanding differential between the official and free market exchange rates, the reported challenges that CBI is facing in repatriating foreign currency and the central bank’s troubled interventions in the currency market as it tried to arrest the loss in the rial’s value. These might be considered “supply-side” drivers of the devaluation as they pertain to the availability of hard currency in the market. On what we can call the “demand-side,” there is inflationary pressure, overall demand for return on investment and the psychological state of the market. To better understand these factors, one can look at the data from the past Iranian year, which ended March 20.

The Iranian rial has lost about a third of its value over the last year, burnishing claims that the economy is stumbling. But while the devaluation is concerning, it does not point directly to real economic weakness. As such, it looks less like a hedge to protect assets and more like a bubble in which Iranians are investing enthusiastically.

Similarly, the price of housing has remained relatively stable. The average price per square meter in Tehran has increased just 12 points over the last Iranian calendar year, which corresponds to a unique situation in the market whereby recent price increases are not being driven foremost by greater demand, but rather a new hesitance among sellers to liquidate their assets and thereby gain exposure to currency depreciation.

Taken together, the relative stability of the inflation rate and the average price of housing suggests that the purchasing power of the rial remains relatively stable for daily consumption. This is particularly the case if one considers that increases in inflation and housing prices were still amply offset by the 18% benchmark interest rate over the last Iranian year.

As such, the recent devaluation bucks the generally accepted explanation for short-term currency depreciation. Research by economist Abbas Valadkhani seeks to establish the principal drivers of the open market exchange rate using annual time series data from 1960 to 2002. In this period, the rial depreciated on average by 13% annually against the dollar. Valadkhani finds that the “short-term sources of the continuous depreciation of Iranian rial are massive domestic price rises in Iran (compared to low US inflation rates) and the meager real growth of GDP.” These findings are consistent with a larger body of economic research.

To reiterate, the last Iranian year did not see “massive domestic price rises” nor did it see “meager real growth of GDP.” Indeed, the IMF estimates that Iran saw 3.5% GDP growth in 2017, part of a long-term projection for economic expansion. So why have Iranians begun to turn to hard currency and gold, driving exchange rates to historic highs?

The explanation lies in that this is an investment behavior. The ability to generate wealth in an otherwise weak economic environment is a skill honed mainly by the upper middle class over decades in order to hedge against stagnant wages, rising prices and general uncertainty. It stands to reason that these investment skills are coming into play in a new way and that what was once speculation pursued in times of macroeconomic weakness is now being pursued absent — or in advance of — such weakness. Thus, what we are witnessing looks more akin to a bubble.

It is worth considering that the proliferation of exchange houses, particularly in the affluent north of Tehran, and the parallel rise of financial reporting websites have made it significantly easier to engage in currency speculation. Iranians can check the free market prices on their phones, go to their nearest exchange house and convert their rials to foreign currency. These days, it is not uncommon to see groups of Iranians waiting first thing in the morning outside of the exchange houses in Tehran’s boutique malls or shopping boulevards to buy dollars and other hard currency.

Aside from ease of participation, there is another important dimension to this investment behavior. Looking to the acceleration of the rial’s weakening since December, there is plenty to suggest that the headlines about Iran’s banking challenges, ongoing protests and of course US hawkishness are also playing their part. The metastasizing of these headlines via the popular app Telegram is enough to give confidence to Iranian investors that hard currency bought today will be more valuable tomorrow, irrespective of the real economic conditions.

In this vein, there is some credence in President Hassan Rouhani’s claim in a February speech that there is no underlying economic reason for the devaluation. He implored the public, “My advice to the people is to not walk down this risky path for their own profit. There are better ways to use your assets, and this path will not be a lasting one.”

Nonetheless, it will be difficult for the Iranian authorities to contend with this new phenomenon. After all, if foreign exchange rates further decouple from Iran’s real economic conditions, the ability of the government to strengthen the rial through monetary policy could diminish. As such, while understandable, the rush for hard currency should be taken as not merely a leading indicator of a pending economic downturn, but given rising speculation, a potential leading cause.