The Central Bank of Iran in a statement Wednesday said it so far has no plan to issue the so-called “Wadia” or depository bonds.
The statement, seen on the CBI website, came in the follow-up to a speech by Akbar Komijani, the CBI boss, during the Islamic Banking Conference held in Tehran on Tuesday.
“CBI’s Council for Islamic Jurisprudence has approved issuing Wadia bonds” along with other banking and financial instruments, he said.
The council oversees banking operations’ compliance with Islamic law and usury-free banking.
This part of Komijani’s speech attracted attention and was misconstrued by local media as the CBI’s “imminent measure” to issue such bonds to curb the unprecedented money supply and inflation.
“This is not on the agenda. Details about such bonds must [first] be approved by the Money and Credit Council,” the CBI said, referring to the top monetary and banking decision making body.
Prospects for issuing Wadia bonds was first floated by some CBI officials in August 2020 as a way to curb money supply. No details are available about the bonds but the CBI said earlier that the bonds would have a 2-year maturity with interest rates to be set by the CBI. Interest rates would depend inflation but not exceed the annual inflation rate.
As the name suggests (Wadieh in Arabic means deposit), it appears that the Wadia bond would be similar to the certificate of deposits with the difference being that the latter bears a fixed interest rate while in the former people deposit their money with banks to receive the principal on maturity plus unspecified amount in interest.
The move is apparently in line with government efforts to control the ballooning money supply and curb the cash flow rattling financial markets. The ultimate goal seems to be reducing inflation by limiting the amount of active money in the economy.
Payman Qorbani, a CBI official, earlier said, “issuing 100 trillion rials [$380 million] in Wadia bonds will help reduce broad money growth by 2.8 percentage points.”
As per data broad money supply reached 37,054 trillion rials ($142 billion) at the end of the Iranian Q1, rising 6.6%
This increased by 39.4% in 12 months, up 5.2 percentage points compared to the annualized 34.2% growth in the corresponding quarter last year.
