Central Bank of Iran and Iran's Financial Systems

The Central Bank of Iran plays a crucial role in managing Iran's financial systems. It oversees the country's monetary policy, ensuring the stability of the national currency, the rial.

The Central Bank of Iran is responsible for maintaining the stability of the banking system, regulating banks, and ensuring their compliance with banking laws and regulations. This is crucial for maintaining trust in the financial system.

The bank also regulates the financial markets, including the stock market and foreign exchange market, to prevent manipulation and ensure fair trading practices. This helps to maintain investor confidence in the Iranian economy.

The Central Bank of Iran has implemented various measures to improve the efficiency and transparency of Iran's financial systems, including the introduction of electronic payment systems and the development of a national payment switch.

The Central Bank of Iran is responsible for implementing monetary policy and maintaining price stability in the country.

Its main objectives include maintaining the value of the Iranian rial, regulating the banking system, and managing the country's foreign exchange reserves.

The bank operates through its branches and affiliated institutions, including the Iranian National Bank and the Bank of Industry and Mine.

The Central Bank of Iran also engages in various activities such as managing the country's gold and foreign currency reserves, and providing financial services to the government and other financial institutions.

In the modern era, the Central Bank of Iran was established in 1960, separating central banking responsibilities from Bank Melli Iran. The Central Bank of Iran was renamed to "the Central Bank of the Islamic Republic of Iran" in 1983, after Iran's banking system adhered to new Islamic rules that prohibit earning or paying interest.

Bank Melli Iran acted as the central bank of Iran for over three decades, maintaining the value of the Iranian rial. The bank was given the responsibility to supervise the national banking system in 1955.

The Central Bank of Iran was cyberattacked by IRLeaks in August 2024, with the central bank being one of 20 banks out of 29 Iranian banks affected. The Iranian government was forced to pay ransom to the hackers to secure the data of Iranian customers.

The Money and Credit Council (MCC) is the highest banking policy-making body of Bank Markazi.

Its 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).

The MCC meets every three months to review and approve major elements of the CBI's monetary and credit policies.

The CBI presents a detailed monetary and credit policy to the MCC for approval each year after the government's annual budget is approved.

In practice, the banking system's ability to create money is not much constrained by the amount of scriptural money through fractional reserve banking.

Most banks first extend credit and look for reserves later, which can lead to inflation if not managed properly.

The Central Bank of the Islamic Republic of Iran has a clear set of objectives outlined in its charter and the Monetary and Banking Law of Iran.

The bank's main objectives are to maintain the value of the national currency, keep the balance of payments in equilibrium, facilitate trade-related financial transactions, and improve the country's economic growth potential.

These objectives are ambitious, but the Central Bank is tasked with achieving them through various functions.

The bank's functions include issuing notes and coins, supervising banks and credit institutions, regulating foreign exchange policies and transactions, and regulating gold transactions.

To achieve its objectives, the Central Bank must balance multiple factors, including the inflation rate and the country's economic growth.

The bank's data suggests that the money supply growth has been about 40% annually, which is a significant challenge to overcome.

Here are the Central Bank's objectives and functions in a concise list:

The Central Bank of Iran has made significant strides in developing its financial systems. One notable example is the Real Time Gross Settlement System (SATNA), which serves as the main center for settling Iranian banks' transactions in rial.

In 2011, the Central Bank launched two new payment systems: Scripless Securities Settlement System (TABA) and automated clearing house system (PAYA). TABA is the electronic infrastructure for placing and settling various securities, including governmental and CBI participation papers.

Iran's Interbank Information Transfer Network (Shetab) was connected to other ATM and POS switch systems, allowing for the acceptance of international bank cards. This move has helped facilitate international transactions and payments.

Islamic banking is a unique approach to finance that prohibits interest, or "riba", which is considered usury by Islam. In Iran, Islamic banking was established after the Islamic Revolution, with the Central Bank passing the Islamic Banking law in 1983.

This law allows Iranian banks to engage in interest-free transactions, using contracts like Gharzolhasaneh, a non-profit loan, or Mozarebe, where the bank provides cash capital and the other party uses it for commercial purposes.

Iran has become a leader in sharia-compliant assets, with about $400 billion worldwide, according to Standard & Poor's Ratings Services. This is a significant market, with a potential of $4 trillion.

The IMF notes that Islamic banking forbids pure monetary speculation, instead focusing on real economic activity, which reduces the risk to financial systems.

Here are some examples of Islamic contracts used in Iran:

Iran, Saudi Arabia, and Malaysia are at the top in terms of sharia-compliant assets.

Iran's fintech industry has made significant strides in recent years. As of 2016, there were 50 companies active in fintech.

One notable fintech company is Finnotech.ir, which is Iran's premier banking API provider. Informatics Services Corporation (ISC) is another leading operator of information systems for the banking industry, including Shetab.

Fintechs in Iran are limited in their role in the financial sector, as they are not allowed to engage in money creation, currency exchange, or offering payment tools like cards. They also cannot attract deposits.

Iran's Central Bank has its own restrictions on fintechs, with account holders only allowed to withdraw up to $15,000 from Iranian banks as of January 21, 2010, but can still write checks for larger amounts.

Iran's foreign reserves have been a topic of interest in recent years. The country's reserves of foreign exchange and gold stood at $125.9 billion in 2015, a significant increase from $111.6 billion in 2014.

In 2007, the composition of Iran's foreign reserves was 10% gold, 20% US dollars, and the rest in major currencies like the Euro, Japanese yen, British pound, and Swiss franc. This is a notable shift from 2006, when 40% of the reserves were held in US dollars.

Iran's foreign debt was a concern in 2010, standing at $22.07 billion, with $10.6 billion of short-term debts and $11.4 billion of mid-term and long-term debts.

Iran's deposits in foreign banks were substantial, standing at $35 billion, while its obligations amounted to $25 billion in 2007. This imbalance was a concern for the country's financial stability.

Here's a breakdown of Iran's foreign reserves and debt:

Iran's foreign transactions were significant, amounting to $150 billion between 2000 and 2007. This highlights the importance of international trade for the country's economy.

Iran's gold reserves have been a topic of interest in recent years. In October 2010, the country's gold reserves hit a record high after the Central Bank took measures to avoid a possible asset freeze by Western countries.

This move was likely a precautionary measure to protect Iran's assets. The Central Bank of Iran (CBI) has reported different amounts of gold reserves over time, with the governor claiming 500 tons in 2012.

However, the head of Tehran's Chamber of Commerce reported a much higher amount of 907 tons of gold purchased at an average of $600 per ounce. This discrepancy remains unexplained.

The CBI governor's reported amount of 500 tons may not include gold reserves held by private individuals or below-ground gold reserves. As of 2012, Iran had 320 metric tons of below-ground gold reserves.

The government debt to banks in Iran is a staggering 3,880,000 billion rials, equivalent to approximately $30 billion, a 3.5% rise since 2013.

This significant increase in government debt has led to a situation where the government prints money, which is then made available to banks that the state controls in Iran. The government then borrows from these banks at interest.

The private sector's debt to banks in Iran has also reached alarming levels, totaling 14,400,000 billion rials or more than $110 billion in the twelve-month period ending on December 20, 2019.

The Central Bank of Iran operates within a regulatory framework that is overseen by the Iranian government.

The Central Bank of Iran is subject to the supervision of the Iranian Parliament.

The bank's regulatory framework is designed to ensure the stability and integrity of the Iranian financial system.

The Anti-Money Laundering law in Iran is enforced by the Central Bank of Iran to prevent possible crime. The law has received international recognition, with the Paris-based Financial Action Task Force (FATF) Watchdog praising Iran's crackdown on money laundering in 2008.

However, in 2010, FATF criticized Iran for failing to comply with international regulations against money laundering and financing terrorism. Despite this, the Iranian government has shown interest in joining FATF.

The government of Iran estimates that dirty money from drug trafficking amounts to 10 trillion tomans a year, which is a significant concern for the country's politics. Some of this money has allegedly been used to influence elections and secure votes.

The enforcement of the Anti-Money Laundering law has been hindered by disagreements among Iranian officials, including hardliners opposed to joining FATF.

US sanctions have had a significant impact on Iran's economy. The US Treasury Department has been actively working to restrict financing of foreign investment and trade with Iran.

In 2006, Swiss banks UBS and Credit Suisse announced that they were halting operations in Iran. This was a major blow to the country's economy, as these banks were significant players in the international financial system.

The US Treasury Department banned all dealings by Bank Saderat Iran with the US financial system in September 2006. This was followed by the blacklisting of Bank Sepah and its British subsidiary, Bank Sepah International, in January 2007.

In October 2007, the US Treasury blacklisted Bank Melli and Bank Mellat. This further restricted Iran's access to the international financial system.

Under pressure from the US, 12 Chinese banks reduced ties with Iranian banks in early September 2007. However, five of them resumed commercial ties in mid-January 2008.

The US Treasury alleged in mid-February 2008 that Iran's Central Bank helped the blacklisted banks evade US sanctions by conducting transactions for them.

The Central Bank of Iran has limited foreign cash reserves due to international sanctions and problems in transferring funds in and out of the country.

The Central Bank of Iran's financial statements are a crucial aspect of understanding the bank's operations and stability. The bank's net foreign assets (NFA) stood at 703,329 billion rials in 2008/09, increasing to 789,498 billion rials in 2009/10.

The bank's foreign assets also saw a significant increase, from 773,352 billion rials in 2008/09 to 863,336 billion rials in 2009/10. This growth is reflected in the bank's foreign assets in US dollars, which rose from 79,587 million to 84,257 million.

The bank's net domestic assets (NDA) took a hit, decreasing from -139,843 billion rials in 2008/09 to -225,654 billion rials in 2009/10. This decline was largely driven by a decrease in net domestic credit.

Here's a breakdown of the bank's claims and deposits:

The bank's base money remained constant at 556,925 billion rials in both 2008/09 and 2009/10. However, the base money's end-period change was a notable 45.4% in 2008/09, followed by a 0.0% change in 2009/10.

Iran's international transactions have been significant, with foreign transactions amounting to $150 billion between 2000 and 2007. This includes major contracts and both private and government lines of credit.

The country's foreign debt was substantial, standing at $22.07 billion in 2010, with $10.6 billion of short-term debts and $11.4 billion of mid-term and long-term debts.

Iran's deposits in foreign banks were substantial, standing at $35 billion in 2007, while its obligations amounted to $25 billion. The country's assets held abroad totaled $62 billion in 2007.

Hawala is an informal trust-based money transfer system used in the Middle East and other Muslim countries.

Many Iranians rely on hawala due to the lack of formal banking infrastructure in their country.

The use of hawala has reportedly increased among Iranians since the imposition of recent U.S. and UN financial sanctions on Iran.

This system allows individuals to transfer money without using traditional banking channels, often through a network of trusted individuals.

Hawala transactions are typically based on trust and reputation, rather than formal contracts or documentation.

Iran's foreign debt stood at $22.07 billion in 2010, with $10.6 billion of short-term debts and $11.4 billion of mid-term and long-term debts.

This significant debt highlights the country's reliance on foreign financing. Iran's deposits in foreign banks, on the other hand, were substantial, standing at $35 billion in 2007, while its obligations amounted to $25 billion.

The country's assets held abroad were valued at $62 billion in 2007. By 2012, Iran's deposits with 39 world banks reached $15.44 billion, with obligations standing at $10.088 billion.

It's worth noting that Iran had between $10 and $20 billion dollars held in foreign banks in 2011 due to payment problems by foreign companies. The European Union reported that Iran still had "several billion euros" deposited in accounts in Germany, Italy, Malta, Spain, Greece, and Switzerland in 2012.

Only $30 billion to $50 billion of its foreign exchange reserves were accessible due to international sanctions as of 2013. This highlights the challenges Iran faced in managing its foreign exposure.

Here are some key statistics on Iran's foreign exchange interactions:

Iran is a country with a rich history and culture. The Central Bank of Iran plays a crucial role in the country's economy.

Established in 1960, the Central Bank of Iran is responsible for regulating the country's monetary policy. It's headquartered in Tehran.

Iran has a population of over 83 million people, making it the 18th most populous country in the world.