Former governors of Central Bank of Iran have opposed parliamentary discussion of a controversial banking bill and asked lawmakers to stop the process.
In a letter to Majlis Speaker Mohammad-Baqer Qalibaf, the former senior bankers, including Mahmood Bahmani, Valiollah Seif, Mohammad Hossein Adeli, Ali Akbar Komijani and Tahmasb Mazaheri along with a number of senior experts say the current legislation must be divided into at least three independent bills drafted by the CBI, ISNA reported
The current bill is inclusive dubbed as the “Comprehensive Islamic Republic Banking Bill”, which integrates four basic banking rules, namely Monetary and Banking Act, Law for Usury Free Banking, Management of Banking Affairs Act and the Law for Establishing Nongovernment Banks.
It is a designated to present an “all inclusive” legislation package covering all banking, monetary and economic issues in 216 articles.
Experts say the proposed bill is controversial lacks initiative in dealing effectively with usury-free banking and only peripherally addresses this key issue, which has long been a major problem of the current banking rules.
Instead, it is focused primarily on changing the structure of the central bank and monetary policy, which the authors of the letter say is not only able to solve the problems but also tends to create new challenges.
“The biggest problem with the bill is its apparent determination to annul the existing four basic legislations and integrate various banking issues that are each significant enough to become an independent law,” the experts argue.
While protecting the national currency and controlling inflation is and must be paramount goal of the central bank, the Majlis-backed bill is seeking to mandate it with anachronistic issues like creating jobs, which is incompatible with the responsibility of central banks.
In addition, the bill not only fails to curb government dominance over the central bank but intensifies it, potentially fueling runaway inflation resulting from unending government borrowing to plug deficits holes.
It also gives extensive authority to the Consultative Fiqh Council, allowing the body to have a big sway on almost all banking and monetary issues.
Unilateral Nature
The Majlis-backed bill has been criticized by respected economists in the government for its unilateral nature. Opponents are of the strong belief that the Majlis has not sought the views of banking experts and informed opinion makers.
Taking stock of the matter, writers of the letter said as the upstream banking law, the bill demands expertise input consultation and must be the exclusive premise banking and monetary experts from the government and the CBI not the parliament.
They proposed the bill be divided into three independent bills drafted by the CBI to be discussed one at a time based on priorities.
There is, however, unanimous agreement that the present banking law belongs to the past and needs reform. It was passed half a century ago and is studded with holes and for all practical purposes failed to protect the value of the rial, which is the primary duty of all central banks.
The structure of the central bank is the most important aspect of the new legislation and MPs are trying to improve it drawing on the experience of central banks in other countries.
In the framework of changes regarding CBI governance, a ‘high council’ will be atop the central bank and replace the governor, who will be relegated to second position.
Members of the council will fall into two categories: executive and non-executive. The governor and vice governor will function as the executive members while the non-executive will include scholars in the banking, monetary, accounting, financial management and lawmaking.
The high council will replace the Money and Credit Council, a top decision-making body that is now the main monetary and banking policymaker.
While members of both the MCC and the high council are appointed by the government, either directly or otherwise, members of the latter have to be chosen mainly from “financial and monetary experts”, not government officials. This is supposed to reduce the government’s role and influence in CBI decision-making to some degree.
The government cannot remove the non-executive members of the high council. When a new government takes office, the president is not allowed to replace most members of the high council in one go. Replacing council members would be gradual and over the four-year tenure of the government.
CBI Independence
There are discussions with regard to the capacity of the new bill in enhancing or undermining the independence of the central bank from the government.
In an analytical report published in early August, the Majlis Research Center, the expert wing of Iran’s Parliament, claimed the bill will potentially enhance the independence of the CBI. But that will not be a panacea.
MRC’s position shows that the CBI will still remain among the 25% of central banks in the world with the lowest level of power and independence from the government.
Although lawmakers backing the bill boast about the new legislation’s potential to boost the much-delayed independence of the central bank, opponents are simply unimpressed.
Examining the level of CBI independence based on international norms the parliamentary think tank said the outcome of its research disproves the MPs’ claims.
Critics are of the opinion that the proposed legislation will undermine CBI authority and make way for the unwanted and unhelpful interference of irrelevant bodies in banking affairs.
