The Central Bank of Iran can become independent only when its policies remain stable for at least seven to 10 years, suggested a prominent Iranian economist.
In an interview with Eghtesad News, Mohammad Hashem Pesaran, a distinguished professor of economics at the University of Southern California, criticized the procedure that let the president simply dismiss the governor even if he does not violate the law.
Pesaran outlined a model that he said would possibly turn the central bank to a more independent monetary body.
“The governor shall serve for a period not shorter than seven years,” he suggested. “This is a common practice in developed countries that could help bring stability to the monetary policy. The longer a governor is in office, the more stable his policies would be. Inflation can also be kept at lower levels.”
Pesaran stated that as far as universal standards are concerned, there is no dispute over who can appoint the governor. But the question is who is authorized to dismiss him and under what circumstances, he added.
He said the law should make it difficult for the government to easily dismiss the governor “unless he clearly violates the law. In that case, the sole body authorized to dismiss him is the judiciary,” not the president.
Former president Mahmoud Ahmadinejad dismissed two central bank governors during his tenure. Pesaran disapproved that act, arguing that the decisions “had negatively affected the macroeconomic policy and also the stability of monetary policy.”
“When the governor of the central bank is frequently replaced, it increases uncertainty in the market, which obviously gives rise to inflationary expectations,” he asserted.
The economist suggested that the minister of finance chooses a candidate out of several people already suggested by a special group, namely the Money and Credit Council.
However, Pesaran underlined that even if the government changes, the new administration should not be authorized to dismiss the governor before his term is over.
CBI Governance Debate
After weeks of debate over how to appoint and dismiss a central bank governor, the Expediency Council announced last week that the candidate is to be proposed by the minister of economic affairs and finance, though his suggested candidate needs to be confirmed by the cabinet members before being endorsed by the president. According to the council’s approval, the president can dismiss the governor only if more than a year of his presidency term is left.
Mizan news agency has recently released a report analyzing the issue, suggesting that all efforts to make the bank more independent was just a show to pave the way for ousting the present governor, Valiollah Seif.
The report even introduced a list of potential candidates for the position. It claims that that the list has been prepared based on rumors having spread through the central bank’s corridors. “Employees and experts at the CBI are of the opinion that recent talks regarding the term of incumbency for the governor and the process of dismissal and designation are all in fact just needed excuses for what might prove to be an imminent change,” the report said.
The CBI was established with an approximate capital of $2.5 million in 1960 and at the time it had 388 employees. The first governor was Ebrahim Kashani and since then twenty other people have succeeded one another in the position.
The governors, since the establishment of the bank, includes Kashani (1960–1961), Ali Asghar Pourhomayoun (1961–1964), Mahdi Samiee (1964–1969), Khodadad Farmanfarmayan (1969–1970), Mahdi Samiee (1970–1971), Abdolali Jahanshahi (1971–1973), Mohammad Yeganeh (1973–1975), Hassan Ali Mehran (1975–1978), Yoosef Khoshkish (1978–1979), Mohammad Ali Molavi (acting) (1979), Alireza Nobari (1979–1981), Mohsen Nourbakhsh (1981–1986), Majid Ghasemi (1986–1989), Mohammad Hossein Adeli (1989–1994), Mohsen Nourbakhsh (1994–2003), Mohammad Javad Vahhaji (acting) (2003), Ebrahim Sheibani (2003–2007), Tahmasb Mazaheri (2007–2008), Mahmoud Bahmani (2008–2013), and Valiollah Seif (2013–present).
All the governors have taken office for one term only, with two exceptions of Samiee and Nourbakhsh, who passed away in 2003. Nourbakhsh served for 14 years marking the longest serving period and some experts believe has been the most successful governor in endowing the CBI with the highest level of independence ever witnessed.
Given the approach of different governments regarding the CBI and its regulations which are not highly in favor of its independence, securing the independence of the bank largely relies on the attitude and managerial method of governors.
