Central Bank of Iran — BrandWiki

Central Bank of Iran

bank name	Central Bank of the Islamic Republic of Iran
bank name in local	بانک مرکزی جمهوری اسلامی ايران
ownership	100% state ownership‡R1R‡
president	Abdolnaser Hemmati
leader title	Governor
bank of	Iran
currency iso	IRR
currency	Iranian rial

The Central Bank of the Islamic Republic of Iran (CBI; ; SWIFT Code: BMJIIRTH), also known as Bank Markazi, was established under the Iranian Banking and Monetary Act in 1960. It serves as the banker to the Iranian government and has the exclusive right to issue banknotes and coinage. CBI is tasked with maintaining the value of the Iranian rial and supervision of banks and credit institutions. It acts as custodian of the National Jewels, as well as the foreign exchange and gold reserves of Iran.[7] 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.[7]

The Governor of the Central Bank of Iran since a December 2025 currency collapse is Abdolnasser Hemmati[8], who replaced Mohammad-Reza Farzin

In November 2023 after 50 years the central bank was revamped fully and changed to include Islamic Republic Development Bank.[9]

reserve requirements	10% to 13%‡R3R‡

borrowing rate	15%‡R4R‡

ioer	Yes‡R5R‡

type	organization

preceding1	Bank Melli Iran2

formed	August 9, 1960

headquarters	CBI Tower, Tehran

coordinates	35.75811°N, 51.43521°W

parent agency	None

child1 agency	Monetary and Banking Research Institute

child2 agency	Iran Banking Institute

child3 agency	Treasury of National Jewels

child4 agency	Security Printing and Minting Organization

child5 agency	Security Paper Mill

child6 agency	Islamic Republic Development Bank

jurisdiction	Islamic Republic of Iran

website	www.cbi.ir

keydocument1	Banking and Monetary Act (1960)

footnotes	1 According to article 10(e) of the Monetary and Banking Act of (1972), CBI's capital "is fully paid up and wholly owned by the Government". 2 Bank Melli Iran had supervisory functions and regulated the activities of all banks in Iran, while being the largest profit-making commercial bank in the country.‡R6R‡

Organization

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).[18]

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.[19] MCC meets every three months.[20]

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.[21] 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.[22]

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.[23]

"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. The tenure of each member would be for 10 years and only for one term.[24][25] Then President Mahmoud Ahmadinejad criticized 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.

Monetary policy

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%.[26]

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.[27]

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.[28]

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. This 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]

Direct instruments

Banking profit rates – As of 2010, the interest rate charged between banks (i.e. interbank rate) is set by the government of Iran.[30]
Credit ceiling – the CBI can intervene in and supervise monetary and banking affairs through limiting banks, specifying the mechanisms for use of funds and determining the ceiling of loans and credits in each sector.

Indirect instruments

Reserve requirement ratio – According to Article 14 of the Monetary and Banking Law of Iran,[31]

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 materialized, local debit 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.[39] However, Iran remains largely a cash-based economy.

The Central Bank has developed the Real Time Gross Settlement System (SATNA) as the main center for settlement of Iranian banks' transactions in rial.

In 2011, two new payment systems were launched: Scripless Securities Settlement System (TABA) as the electronic infrastructure for placement and settlement of various securities, including governmental and CBI participation papers. The launching of the automated clearing house system (PAYA) for processing individual and multiple payment orders, connection of Iran's Interbank Information Transfer Network (Shetab) to other ATM and POS switch systems for the acceptance of international bank cards, designing of the electronic card payment system (SHAPARAK) for the centralization and reorganization of POSs.[40]

Following international sanctions during the Russian invasion of Ukraine which blocked Russia from using SWIFT, Mohsen Karimi, who is the international deputy governor at the Central Bank of Iran, and his Russian counterpart Vladislav Gridchin, who is a representative of the Central Bank of Russia, announced that both nations developed ways to bypass SWIFT.[41][42]

Digital currency

According to the Ministry of ICT in 2018, Post Bank of Iran will issue Iran's first digital currency over the blockchain technology (with the advantage, in relation to the sanctions against Iran that blockchain transactions do not need any clearing bank).[43]

Furthermore, given Iran's large reserves of oil and gas, the Iranian rial could become a reserve currency if parity is established with oil and gas,[44] as was between USD and gold in the past (e.g. parity of 1,000,000 tomans for a barrel of oil), such as with Venezuela's newly minted "Petro" crypto-currency.[45]

Islamic banking

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 Majlis.[67] This law describes and authorizes an Iranian Shiite version of Islamic commercial laws (as differentiated from a less 'liberal' Sunni version).[68] According to this law, Iranian banks can only engage in interest-free Islamic transactions (as interest is considered usury or "riba" and is forbidden by Islamic law).

In practice, 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.[69] 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.[70] All such transactions are performed through (12) Islamic contracts, such as Mozarebe, Foroush Aghsati, Joalah, Salaf, and Gharzolhasaneh. Details of these contracts and related practices are outlined in the Iranian Interest-Free banking law and its guidelines. Examples are:

Sharia-compliant assets has reached about $400 billion throughout the world, according to Standard & Poor’s Ratings Services, and the potential market is $4 trillion.[71][72] Iran, Saudi Arabia and Malaysia are at the top with the biggest sharia-compliant assets.[73]

According to the IMF, Islamic banking forbids pure monetary speculation and stresses that deals should be based on real economic activity and therefore poses less risk than conventional banking to the stability of financial systems.[74]

1) Gharzolhasaneh: An interest-free, non-profit, loan extended by a bank to a real or legal person for a definite period of time.
2) Joalah: The undertaking by one party (the jael, Bank or employer) to pay a specified money (the joal) to another party in return for rendering a specified service in accordance with the terms of the contract. The party rendering the service shall be called "Amel" (the Agent or Contractor).
3) Mosaqat: A contract between the owner of an orchard or garden with another party (the Amel or Agent) for the purpose of gathering the harvest of the orchard or garden and dividing it, in a specified ratio, between the two parties . The harvest can be fruit, leaves, flowers, etc. of the plants in the orchard or garden.
4) Mozaraah: A contract where the bank (the Mozare) turns over a specified plot of land for a specified period of time to another party (the Amel or Agent) for the purpose of farming the land and dividing the harvest between the two parties at a specified ratio.
5) Mozarebe: A contract wherein the bank undertakes to provide the cash capital and other party (the Amel or Avent) undertakes to use the capital for commercial purposes and divide the profit at a specified ratio between the two parties at the end of the term of the contract.

Criticism

Critics believe that the Iranian Interest-Free banking 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 principal amount, the expected interest and the late fees are collected through possession and or sale of secured collaterals.[70]

Foreign relations

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.[75] World Bank loans to Iran come only from the International Bank for Reconstruction and Development (IBRD). Iran is a member of the World Bank's Multilateral Investment Guarantee Agency.[76] Iran joined the International Monetary Fund (IMF) on 29 December 1945.[77] 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.[78]

Foreign exposure and transactions

Iran's foreign debt: $22.07 billion in 2010 ($10.6 billion of short-term debts and $11.4 billion of mid-term and long-term debts).[79]
Iran's deposits in foreign banks: stand at $35 billion while its obligations amount to $25 billion (2007). In 2007, Iran had $62 billion worth of assets held abroad.[80] According to the Bank for International Settlements, Iran's deposits with 39 world banks reached $15.44 billion at the end of March 2012 while its obligations stood at $10.088 billion.[81] In addition it was reported that Iran had between 10 and 20 billion dollars held in foreign banks in 2011, allegedly because of payment problems by foreign companies to Iran.[82][83] According to E.U. sources, despite the European sanctions, Iran has still "several billion euros" deposited in accounts in Germany, Italy, Malta, Spain, Greece and Switzerland (2012).[84] As at 2013, only $30 billion to $50 billion of its foreign exchange reserves (i.e. roughly 50% of total) is accessible because of the international sanctions.[85]
Transactions: Foreign transactions with Iran amounted to $150 billion between 2000 and 2007 worth of major contracts and both private and government lines of credit.[87] 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.[88]

US sanctions

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 Iran's Central Bank helped the blacklisted banks evade US sanctions, by conducting transactions for them.[89]

Barter trade

The Central Bank possesses limited foreign cash reserves due to the international sanctions and problems in the transfer of funds in and out of country. In 2012, The U.S. unilaterally expanded sanctions, which cut off from the US financial system foreign firms that do business with the central bank.[90] Iran is reportedly making increasing use of barter trade, cash smuggling, gold and local currencies of its trading partners to circumvent the international sanctions.[91][92] The CBI has been blacklisted by the U.S. government due to the bank's involvement in the Iranian nuclear program and it has been blocked from using SWIFT since March 2012 as a consequence.[93]

Central Bank of Iran

History

Objectives and functions

Organization

Money and Credit Council

General Assembly

"Reform" proposal

Monetary policy

Direct instruments

Indirect instruments

Financials

Government and private sector debt

Payment systems

Digital currency

Reserves

Foreign reserves

Gold reserves

Islamic banking

Criticism

Foreign relations

Foreign exposure and transactions

US sanctions

Barter trade

Leadership

Buildings

Publications

See also

General and cited sources

External links

References

Money supply

Fintech

Cheques

Debit/credit cards

Hawala

Anti-money laundering