The Majlis on Sunday began debating a controversial banking bill amid mounting concern by experts about the potential flaws that could undermine the central bank.
Backed by parliament, the bill is inclusive, dubbed the “Comprehensive Islamic Republic Banking Bill” and seeks to incorporate four key banking rules, namely Monetary and Banking Act, Law for Usury Free Banking, Management of Banking Affairs Act and the Law for Establishing Nongovernment Banks.
Lawmakers started the discussions despite persistent calls by economists and monetary experts to wait and first let a CBI-initiated bill be presented for deliberation. The latter argue that the legislature did not seek the government’s opinion in drafting the key legislation.
MPs discussed provisions of Article 5 of the bill pertaining to the structure of the Central Bank of Iran. As per the provisions, the general assembly, supreme board, the board of directors, board of supervisors and the Fiqh council are the five pillars of the central bank, the parliamentary news website, ICANA reported.
Article 7 says members of the supreme board would include: the CBI chief who will function as president of the board, the economy minister, head of the Planning and Budget Organization, two economists specializing in monetary and currency policies and two banking specialists.
The supreme board will meet twice a month and its decisions must be approved by at least four of the five members.
Lawmakers approved Article 8 of the bill, which describes the mandate of the supreme board. Accordingly, the top body is tasked with making critical banking and monetary decisions, such as setting monetary, banking and credit policies, determining banking fees and interest rates, approving bylaws and regulations, issuing permits for credit institutions and annulling those that exist, among other things.
In addition, two specialized committees will operate under the auspices of supreme board, including the monetary and currency policy-making committee and the regulatory and supervisory committee.
The CBI governor is required to hold quarterly meetings to probe the efficacy of monetary/currency policies.
The structure of the central bank is apparently the most important aspect of the bill and lawmakers have said they would strive to improve it under new bill, drawing on the experience of central banks in other countries.
In the framework of reforming CBI governance, the supreme board will supersede the governor, who will be relegated to second position. The board reportedly will replace the Money and Credit Council, the authority on monetary and banking policies.
Former CBI Chiefs Want Delay
From what is known of the impending legislation, it has been singled out and censured time and again by senior banking experts. Earlier in the month, a group of banking and monetary experts, headed by former CBI governors, called for postponing the legislative process.
In a letter to Majlis Speaker Mohammad-Baqer Qalibaf, the senior bankers along with economic and monetary experts said this piece of legislation should be separated into at least three independent bills drafted by the CBI.
They stated that the controversial bill lacks effective proposals for dealing with usury-free banking and has vaguely addressed this key issue – one major flaw with the current banking law.
The new legislation, they say, instead focuses on changing the structure of the central bank and rewrite monetary policies, which is “not only not enough to address the banking ills but would lead to new management challenges”.
In addition, the bill does nothing to curb the government’s tight-grip on the central bank and consolidates it further, potentially fueling runaway inflation resulting in borrowing from the CBI to plug the deep deficit holes.
The bill, its opponents insist, gives unlimited power and authority to the consultative Fiqh Council, allowing it the last word on almost all key banking and monetary policies.
There is also serious concern about the much-needed real independence of the central bank under the new. MPs claim that the independence will be boosted but critics are unconvinced, to say the least.
In an analytical report published early this month, the Majlis Research Center, the influential parliamentary think tank, said the bill would “potentially enhance the independence of the CBI, but won’t be sufficient.”
The MRC review underscores the concern that Iran will be stuck among 25% of the countries with the least central bank independence from the government.
