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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.
[edit] HistoryThe first attempt at introducing paper currency in Iran occurred during the Mongol Ilkhanate of the 13th century CE. The innovation, developed in Song Dynasty China, did not take hold in Iran, and paper currency did not return to Iran in any significant manner for several centuries.[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 IranThe governors of Central Bank of Iran are as follows[6]:  
[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:
[edit] Islamic bankingSee also: 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] Under these rules, deposit rates, known as "dividends", are in theory related to a bank's profitability. In reality, however, these dividends have become fixed rates of return—depositors have never lost their savings because of losses made by the banks and almost never received returns larger than the provisional ex-ante profit rates. Interest charged on loans is presented as "fees" or a share of corporate profits.[9] 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.[9] Shariah-compliant assets has reached about $400 billion throughout the world, according to Standard & Poor’s Ratings Services, and the potential market is $4 trillion.[10][11] [edit] Payment systemsSee also: Shetab Banking System 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.[12] [edit] Anti-money laundering lawThe 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.[13] [edit] Key statisticsSee also: Economy of Iran 
[edit] Inflation and monetary policySee also: Iranian Rial Double digit inflation rates have been a fact of life in Iran for the past 20 years. Between 2002 and 2006, the rate of inflation in Iran has been fluctuating between 12 and 16%[37]. 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[38]. 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. The Central Bank assesses the inflation rate with the use of the prices of 395 goods and services in Iran's urban areas.[39] 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 and small entrepreneurs. 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.[40] In June 2009, the Central Bank of Iran (CBI) decided to revive the Money and Credit Council (MCC). It is the highest banking policy-making body. Its members include the CBI governor, the Finance and Economy minister and two lawmakers (MPs).[41] [edit] Foreign relationsIran 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. [42] Iran joined the International Monetary Fund (IMF) on December 29, 1945[43]. 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.[44]. The Central Bank of Iran has an observer status at the annual meetings of the Bank for International Settlements (BIS) in Basel, Switzerland. The US Treasury Department has also stepped up its attempt to restrict financing of foreign investment and trade with Iran. In January 2006, Swiss banks UBS and Credit Suisse announced separately that they were halting operations in Iran. In September 2006 the Treasury Department banned all dealings by Bank Saderat Iran with the US financial system, and in January 2007 it also blacklisted Bank Sepah and its British subsidiary, Bank Sepah International. In October 2007 the US Treasury blacklisted Bank Melli and Bank Mellat. Under pressure from the US, 12 Chinese banks have reduced ties with Iranian banks since early September 2007, but five of them resumed commercial ties in mid-January 2008. In mid-February 2008, the US Treasury alleged that Bank Markazi (Iran’s central bank) helped the blacklisted banks evade US sanctions, by conducting transactions for them. The allegations could lead to sanctions and stiff penalties against Iran’s central bank, especially if US allies participate in them.[45] [edit] Significant buildings
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[edit] Further reading[edit] External links
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