Central Bank of the Islamic Republic of Iran

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The Central Bank of the Islamic Republic of Iran (Persian: بانک مرکزی جمهوری اسلامی ايران, Bank Markazi Jomhouri Islami Iran) is the central bank of Iran. It is entirely government owned.

Contents 1 History 2 Governors of the Central Bank of Iran 3 Objectives 4 Islamic banking 5 Payment systems 6 Money laundering 7 Key statistics 8 Inflation and monetary policy 9 Membership in international organizations 10 Significant buildings 11 Contacts 12 References 13 See also 14 Further reading 15 External links

[edit] History

The Ilkhanate were one of the rulers of Iran that tried to introduce paper currency in Iran in the late 13th century, without success.^[1]

In modern banking, the British first opened the Imperial Bank of Persia in 1889, with offices in all major cities of Persia and India. To compete with the British bank, Imperial Russia also opened the Russian Loan and Development Bank.^[2]

The first state owned Iranian bank, Bank Melli Iran was established in 1927 by the government of Iran.^[3] The bank's primary objective was to facilitate government's financial transactions and to print and distribute the Iranian currency (rial and toman). For more than 33 years, Bank Melli Iran was acting as the central bank of Iran with the responsibility to maintain the value of Iranian Rial.

In August 1960, the Iranian government established the Central Bank of Iran (CBI) and separated all central banking responsibilities from Bank Melli Iran and assigned it to the newly formed central bank^[4].

The Central Bank of Iran was renamed to "the Central Bank of the Islamic Republic of Iran" immediately after the Islamic revolution and the overthrow of the Shah of Iran. Scope and responsibilities of the Central Bank of the Islamic Republic of Iran (CBI) have been defined in the Monetary and Banking Law of Iran^[5]

CBI maintains a museum of historic and ancient jewelry owned and used by the ex-kings of Persia. This museum houses the Imperial Crown Jewels and is one of the most appealing tourist attractions in Iran.

[edit] Governors of the Central Bank of Iran

The governors of Central Bank of Iran are as follows^[6]:

Governor	Date
Ebrahim Kashani	1960
Ali Asghar Poor Homayoon	1961
Mahdi Samii	1964
Khodadad Farmanfarmayan	1969
Mahdi Samii	1970
Abdolali Jahanshahi	1971
Mohammad Yeganeh	1973
Hassan-Ali Mehran	1975
Yoosef Khoshkish	1978
Mohammad Ali Molavi	1979
Alireza Nobari	1979
Mohsen Nourbakhsh	1981
Majid Ghasemi	1986
Seyed Mohammad Hossein Adeli	1989
Mohsen Nourbakhsh	1994
Mohammad Javad Vahhaji (acting)	2003
Ebrahim Sheibani	2003
Tahmasb Mazaheri	2007
Mahmoud Bahmani	2008

[edit] Objectives

The objectives of the Central Bank of the Islamic Republic of Iran as per its charter and according to section 10 of the Monetary and Banking Law of Iran^[5] are as follows:

• Maintaining the value of national currency
• Maintaining the equilibrium in the balance of payments
• Facilitating trade-related financial transactions
• Improving the growth potential of the country

[edit] Islamic banking

In a country where the government claims to follow the strict Islamic principles, running a traditional banking network would be against the fundamental teachings of Qur’an. Therefore, immediately after the Islamic Revolution, the Central Bank was mandated to establish an Islamic banking law. In 1983 the Islamic Banking law of Iran was passed by the Islamic Majlis of Iran ^[7]. According to this law, Iranian banks can only engage in interest-free Islamic transactions (interest is considered as usury or riba and is forbidden by Islam and the holy book of Qur’an). These are commercial transactions that involve exchange of goods and services in return for a share of the assumed "profit". Iran uses what are officially termed "provisional" interest rates, as rates paid to depositors or received from borrowers should reflect the profits or losses of a business.^[8]

All such transactions are performed through Islamic contracts, such as Mozarebe, Foroush Aghsati, Joale, Salaf, and Gharzol-hassane. Details of these contracts and related practices are outlined in the Iranian Interest-Free banking law and its guidelines. This law describes and authorizes an Iranian Shiite version of Islamic commercial laws. Iran’s banking system adheres to Islamic rules that prohibit earning or paying interest.

Critics believe that this law has simply created the context for legitimizing usury or riba. In reality all banks are charging their borrowers a fixed pre-set amount at a rate of interest that is approved by the Central Bank at least once a year. No goods or services are exchanged as part of these contracts and banks rarely assume any commercial risk. High value collateral items such as real estate, commercial paper, bank guarantees and machinery eliminate any risk of loss. In case of defaults or bankruptcies, the principle amount, the expected interest and the late fees are collected through possession and or sale of secured collaterals.

[edit] Payment systems

In 2005, the government obliged the Central Bank of Iran and the Iranian banks, mostly state owned, to set up all the necessary infrastructures (regulatory, hardware, software) for fully launching e-money in Iran by March 2005. While this plan has not yet fully materialised, local debit/credit cards are now commonplace and have removed the main obstacle to the growth of e-commerce (in the national scale) as well as the full roll out of e-government initiatives.^[9]

[edit] Money laundering

The Central Bank of Iran is enforcing the newly-passed Anti-Money Laundering law to curb possible crime. The minister of intelligence, the governor of the Central Bank of Iran (CBI) and several other ministers are among the members of the special committee in charge of the campaign against money laundering. In 2008, the Paris-based Financial Action Task Force (FATF) Watchdog praised the Islamic Republic's crackdown on money laundering. The 34-member financial watchdog congratulated Tehran on its commitment to seal money laundering loopholes.^[10]

[edit] Key statistics

• GDP growth projection: growth to average 3.6% (2009-2010 to 2013-2014)^[11]. This is substantially below an estimated 5.6% for pervious 5 years.^[12]

• Reserves of foreign exchange & gold: $40 billion (2005), $80 billion (2008)^[13]

• Composition: In 2007, 10% of the Reserves were held in Gold, 20% in US dollars (down from 40% in 2006), the rest mostly in Euro and other major currencies (ie, Yen, British Pound and the Swiss Franc).
• Usage: Part of the reserves are held in the $12 billion (2006) Oil Stabilization Fund, designed for capital investment or for budget support if oil prices - Iran's main foreign exchange earner - fall perilously low.^[14] A new fund will replace the Oil Stabilization Fund in 2009 called the National Development Fund. The new fund is to extend financial facilities to private, cooperative and non-governmental sectors in an effort to promote domestic and foreign investment.^[15]

• Iran's deposits in foreign banks stand at $35 billion while its obligations amount to $25 billion (2007).^[16] According to the Bank for International Settlements (BIS), the balance of Iran’s foreign exchange interactions in foreign banks and financial institutes during Q3 2008 stood above $24.3 billion.^[17]

• Average exchange rates: rials per US dollar - 9,143 (2008 est.), 9,326 (2007), 9,246 (2006), 8,964 (2005), 8,885 (2004), 8,193 (2003)^[18]

note: Iran has been using a managed floating exchange rate regime since unifying multiple exchange rates in March 2002.

Pre-unification, rials per US dollar:

Market: 8,200 (2002), 8,050 (2001), 8,350 (2000)^[19]

Official: 6,906 (2002), 1,753 (2001), 1,764 (2000)^[20]

• Money supply: The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $71.7 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $153.6 billion. According to the CBI, the country's liquidity amounted to some $174 billion by April 2008.^[21]

• Commercial banks' lending rate: 12.0% (2007), 11.5% (2008), 11.0% (2009-projected)^[22]

• Inflation: According to Bank Markazi, rate of inflation as of April 2008 was 18.4% and 24.3% for 2008. ^[23][24]

• Overdue loans: According to unofficial figures, overdue loans have reached IR175,000bn ($17.8bn, €13.6bn, £11bn), an increase of 75 per cent over three years (November 2008).^[25] Plan to inject about $13 billion to recapitalize the banking sector (2008)^[26]

[edit] Inflation and monetary policy

Double digit inflation rates have been a fact of life in Iran for the past 20 years. Between 2002 and 2006, rate of inflation has been fluctuating between 12 and 16%^[27].

Monetary policy in Iran has not been successful in meeting the inflation and monetary targets set in the Iranian Five-Year Development Plans, owing mainly to the monetary impact of government spending out of oil revenue. Although the attainment of the inflation targets has improved somewhat recently, the objective of a gradual disinflation to single-digit levels has not been achieved. Moreover, the implicit intermediate target of monetary policy, money growth, has been systematically missed^[28].

The Central Bank is an extension of the Iranian government and as such it does not operate independently. Interest rate is usually set based on political priorities and not monetary targets. There is little alignment between fiscal and monetary policy.

High levels of inflation have also been associated with a growth in Iran's money supply. The Central Bank's data suggest that the money supply growth has been about 40% annually. The rapid growth of money supply came from high demands for borrowing capital at the rate of 12% the banks offer, imposed by the Government to make credit accessible to average Iranians. However, this rate is lower than the rate of inflation, which makes the cost of borrowing less than free market cost as determined by supply and demand based on the inflation rate and investment risk.^[29]

In June 2009, the Central Bank of Iran (CBI) decided to revive the Money and Credit Council. It is the highest banking policy-making body. Its members include the CBI governor, the Finance and Economy minister and two lawmakers.^[30]

[edit] Membership in international organizations

• Iran is member of the Islamic Development Bank.

• As of August 2006, the World Bank has financed 48 development projects in the country for a total original commitment of US$3,413 million. ^[31]

• Iran joined the International Monetary Fund (IMF) on December 29, 1945^[32]. CBI governors attend IMF's board discussions on Iran on behalf of the government. These meetings are usually held once a year in Washington D.C.^[33].

• The Central Bank of Iran has an observer status at the annual meetings of the Bank for International Settlements (BIS) in Basel, Switzerland.

[edit] Significant buildings

• Mirdamad Building - 144 Mirdamad Boulevard, Tehran, Iran^[34]
• Ferdowsi Building - Ferdowsi Ave, Tehran, Iran
• Jewelry Museum - Ferdowsi Ave, Tehran, Iran^[35]

[edit] Contacts

• Official website
• Swift Address: BMJIIRTH
• Postal address: 144 Mirdamad Boulevard, Tehran, Iran

[edit] References

[edit] See also

• List of banks in Iran
• Iranian rial (Iran's currency)
• Tehran Stock Exchange
• Shetab Banking System
• Labour and tax laws in Iran
• Economy of Iran
• Privatization in Iran
• Iranian oil bourse
• Ministry of Petroleum of Iran
• Imperial Bank of Persia
• Islamic banking
• History of banking
• List of central banks

[edit] Further reading

• Islamic Banking — Iran Daily
• Islamic Banking Law

[edit] External links

• (Persian) (English) Central Bank of the Islamic Republic of Iran official site (including statistics about Iran's economy)

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