Central Bank of Iran

The Central Bank of Iran (CBI), also known as Bank Markazi, officially the Central Bank of the Islamic Republic of Iran (Persian: بانک مرکزی جمهوری اسلامی ايران, romanized: Bank Markazi-ye Jomhuri-ye Eslāmi-ye Irān; SWIFT Code: BMJIIRTH) is the central bank of Iran.

Established under the Iranian Banking and Monetary Act in 1960, it serves as the banker to the Iranian government and has the exclusive right of issuing banknote and coinage. CBI is tasked with maintaining the value of Iranian rial and supervision of banks and credit institutions. It acts as custodian of the National Jewels, as well as foreign exchange and gold reserves of Iran. It is also a founding member of the Asian Clearing Union, controls gold and capital flows overseas, represents Iran in the International Monetary Fund (IMF) and internationally concludes payment agreements between Iran and other countries.

The 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.

Modern era

In 1889, the British-owned Imperial Bank of Persia (Bānk-e Šāhī) was founded and it was given the exclusive right to issue bank notes in Iran. In 1890 it introduced the first bank notes in Iran, ranging from 1 to 1,000 tomans. The bank did not do much to strengthen the Iranian capital formation or support then-currency of Iran, qiran.

To compete with the British bank, Imperial Russia also opened the Russian Loan and Development Bank. Polyakov's Bank Esteqrazi was bought in 1898 by the Tzarist government of Russia, and later passed into the hands of the Iranian government by a contract in 1920.

The first state-owned Iranian bank, Bank Melli Iran was established in 1927 by the government of Iran. On 30 May 1930, it took the responsibility to function as Iran's central bank, and took the rights of the Imperial Bank for £200,000, while it acted as a commercial bank at the same time. 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 three decades, Bank Melli Iran acted as the central bank of Iran and was charged with the responsibility to maintain the value of Iranian rial. In 1955, the bank was given the responsibility to supervise the national banking system.

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. 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 (1960).

The Central Bank of Iran was renamed to "the Central Bank of the Islamic Republic of Iran", and Iran's banking system adhered to the new Islamic rules that prohibit earning or paying interest in 1983.

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.

Imperial Bank of Persia, Tehran, 1902

Money and Credit Council

The Money and Credit Council (MCC) is the highest banking policy-making body of Bank Markazi. Its permanent members include the CBI Governor, the Finance and Economy Minister, two Ministers chosen by the Cabinet, The Head of the Chamber of Commerce, the General Prosecutor and two lawmakers (MPs).

Each year, after approval of the government's annual budget, the CBI presents a detailed monetary and credit policy to the MCC for approval. Thereafter, major elements of these policies are incorporated in the five-year economic development plan. MCC meets every three months.

In practice, the ability of the banking system to create money is not much constrained by the amount of scriptural money through fractional reserve banking. Indeed, most banks first extend credit and look for reserves later. The Iranian Central Bank needs more independence from the government in order to combat inflation, according to the country's Parliament Research Center. As of 2010, Iran's Central Bank, is not able to conduct a "proactive" monetary policy (e.g. it needs Majlis' approval before issuing participation bonds) and has no control over the government's fiscal policy.

General Assembly

The current combination of the Central Bank's board of directors are the President, Economy and Commerce Ministers, Deputy-President for strategic planning, and a Minister selected by the Cabinet.

"Reform" proposal

Seven economists with at least 15 years of work experience were to become members of the general assembly according to a new law proposed by the Majlis in 2010, thus moving this body from being state-dominated to one where the private sector has greater say in the decision making process. Tenure of each member would be for 10 years and only for one term. Then President Mahmoud Ahmadinejad critiqued this proposal and said that it is important for the Central Bank of Iran not to fall under private control "because it would not benefit the Iranian people" over the long run.

The President of Iran proposes a person as the governor of CBI, who must be verified by the general assembly and appointed as per a presidential decree.

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 (MBAI) are as follows:

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

To achieve the objectives as stated in the MBAI, CBI is endowed with the responsibility of fulfilling the following functions

• Issuance of notes and coins
• Supervision of banks and credit institutions
• Formulation and regulation of foreign exchange policies and transactions
• Regulation on gold transactions
• Formulation and regulation on transactions and inflow/outflow of Domestic currency

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. However, in 2010, FATF, named Ecuador and Iran on a list of states that it says are failing to comply with international regulations against money laundering and financing terrorism. Despite president Hassan Rouhani showing interest in FATF, there has been a massive disagreements by hardliners related to supreme leader, Ali Khamenei. Among them Ahmad Jannati, the chairman of the Assembly of Experts and the secretary of the Guardian Council and Ali Akbar Velayati, Iran's former foreign secretary and Supreme leader top foreign relationship advisor are two notable people who are against the FATF. These disagreements and lack of FATF being approved by the Iranian parliament has brought FATF enforcement to halt.

It has been estimated by the government of Iran in 2015 that dirty money from drug trafficking in Iran amounts to 10 trillion tomans a year (1 toman equals 10 rials), some of which has been finding its way into "elections and the securing of votes" to influence the country's politics.

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, $197 billion by October 2009.[citation needed] and over $300 billion in 2011. Estimates put the amount of capital floating in Iran's market at $254 billion in 2012.

Money in circulation reached $700 billion in March 2020 (based on the 2017 pre-devalation exchange rate). (Iran’s monetary base reached 3,721.46 trillion rials (nearly $12 billion) in September 2020 while M2 reached $95 billion (i.e. 26% and 36.2% increase in one year respectively), while the money multiplier effect (which shows how much the monetary base could create new money in the economy) had reached an all-time high), thus explaining the rise in inflation (40%) and of the fall of the Iranian rial in recent years. The Iranian rial has fallen almost five-fold since the beginning of 2018. In turn, Iran's forex reserves have fallen, as Iran is trying to maintain the value of its currency by injecting forex into the market to meet the demand for US dollars by the general public and companies and pay for imports.

In turn, the cause of this is due to inefficient taxation in Iran and tax collection (and tax evasion in particular). Inflation (or loss of purchasing power) being a uniform hidden taxation on the population (unless compensated by an increase in salaries and productivity) which adversely affects the lower strata of the Iranian population the most.

The Central Bank of Iran (CBI), also known as Bank Markazi, officially the Central Bank of the Islamic Republic of Iran (Persian: بانک مرکزی جمهوری اسلامی ايران, romanized: Bank Markazi-ye Jomhuri-ye Eslāmi-ye Irān; SWIFT Code: BMJIIRTH) is the central bank of Iran.

Established under the Iranian Banking and Monetary Act in 1960, it serves as the banker to the Iranian government and has the exclusive right of issuing banknote and coinage. CBI is tasked with maintaining the value of Iranian rial and supervision of banks and credit institutions. It acts as custodian of the National Jewels, as well as foreign exchange and gold reserves of Iran. It is also a founding member of the Asian Clearing Union, controls gold and capital flows overseas, represents Iran in the International Monetary Fund (IMF) and internationally concludes payment agreements between Iran and other countries.

The 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.

Modern era

In 1889, the British-owned Imperial Bank of Persia (Bānk-e Šāhī) was founded and it was given the exclusive right to issue bank notes in Iran. In 1890 it introduced the first bank notes in Iran, ranging from 1 to 1,000 tomans. The bank did not do much to strengthen the Iranian capital formation or support then-currency of Iran, qiran.

To compete with the British bank, Imperial Russia also opened the Russian Loan and Development Bank. Polyakov's Bank Esteqrazi was bought in 1898 by the Tzarist government of Russia, and later passed into the hands of the Iranian government by a contract in 1920.

The first state-owned Iranian bank, Bank Melli Iran was established in 1927 by the government of Iran. On 30 May 1930, it took the responsibility to function as Iran's central bank, and took the rights of the Imperial Bank for £200,000, while it acted as a commercial bank at the same time. 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 three decades, Bank Melli Iran acted as the central bank of Iran and was charged with the responsibility to maintain the value of Iranian rial. In 1955, the bank was given the responsibility to supervise the national banking system.

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. 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 (1960).

The Central Bank of Iran was renamed to "the Central Bank of the Islamic Republic of Iran", and Iran's banking system adhered to the new Islamic rules that prohibit earning or paying interest in 1983.

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.

Imperial Bank of Persia, Tehran, 1902

Money and Credit Council

The Money and Credit Council (MCC) is the highest banking policy-making body of Bank Markazi. Its permanent members include the CBI Governor, the Finance and Economy Minister, two Ministers chosen by the Cabinet, The Head of the Chamber of Commerce, the General Prosecutor and two lawmakers (MPs).

Each year, after approval of the government's annual budget, the CBI presents a detailed monetary and credit policy to the MCC for approval. Thereafter, major elements of these policies are incorporated in the five-year economic development plan. MCC meets every three months.

In practice, the ability of the banking system to create money is not much constrained by the amount of scriptural money through fractional reserve banking. Indeed, most banks first extend credit and look for reserves later. The Iranian Central Bank needs more independence from the government in order to combat inflation, according to the country's Parliament Research Center. As of 2010, Iran's Central Bank, is not able to conduct a "proactive" monetary policy (e.g. it needs Majlis' approval before issuing participation bonds) and has no control over the government's fiscal policy.

General Assembly

The current combination of the Central Bank's board of directors are the President, Economy and Commerce Ministers, Deputy-President for strategic planning, and a Minister selected by the Cabinet.

"Reform" proposal

Seven economists with at least 15 years of work experience were to become members of the general assembly according to a new law proposed by the Majlis in 2010, thus moving this body from being state-dominated to one where the private sector has greater say in the decision making process. Tenure of each member would be for 10 years and only for one term. Then President Mahmoud Ahmadinejad critiqued this proposal and said that it is important for the Central Bank of Iran not to fall under private control "because it would not benefit the Iranian people" over the long run.

The President of Iran proposes a person as the governor of CBI, who must be verified by the general assembly and appointed as per a presidential decree.

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 (MBAI) are as follows:

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

To achieve the objectives as stated in the MBAI, CBI is endowed with the responsibility of fulfilling the following functions

• Issuance of notes and coins
• Supervision of banks and credit institutions
• Formulation and regulation of foreign exchange policies and transactions
• Regulation on gold transactions
• Formulation and regulation on transactions and inflow/outflow of Domestic currency

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. However, in 2010, FATF, named Ecuador and Iran on a list of states that it says are failing to comply with international regulations against money laundering and financing terrorism. Despite president Hassan Rouhani showing interest in FATF, there has been a massive disagreements by hardliners related to supreme leader, Ali Khamenei. Among them Ahmad Jannati, the chairman of the Assembly of Experts and the secretary of the Guardian Council and Ali Akbar Velayati, Iran's former foreign secretary and Supreme leader top foreign relationship advisor are two notable people who are against the FATF. These disagreements and lack of FATF being approved by the Iranian parliament has brought FATF enforcement to halt.

It has been estimated by the government of Iran in 2015 that dirty money from drug trafficking in Iran amounts to 10 trillion tomans a year (1 toman equals 10 rials), some of which has been finding its way into "elections and the securing of votes" to influence the country's politics.

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, $197 billion by October 2009.[citation needed] and over $300 billion in 2011. Estimates put the amount of capital floating in Iran's market at $254 billion in 2012.

Money in circulation reached $700 billion in March 2020 (based on the 2017 pre-devalation exchange rate). (Iran’s monetary base reached 3,721.46 trillion rials (nearly $12 billion) in September 2020 while M2 reached $95 billion (i.e. 26% and 36.2% increase in one year respectively), while the money multiplier effect (which shows how much the monetary base could create new money in the economy) had reached an all-time high), thus explaining the rise in inflation (40%) and of the fall of the Iranian rial in recent years. The Iranian rial has fallen almost five-fold since the beginning of 2018. In turn, Iran's forex reserves have fallen, as Iran is trying to maintain the value of its currency by injecting forex into the market to meet the demand for US dollars by the general public and companies and pay for imports.

In turn, the cause of this is due to inefficient taxation in Iran and tax collection (and tax evasion in particular). Inflation (or loss of purchasing power) being a uniform hidden taxation on the population (unless compensated by an increase in salaries and productivity) which adversely affects the lower strata of the Iranian population the most.