The Majlis on Sunday voted to discuss a comprehensive banking bill on a priority basis that seeks to augment the independence of Central Bank of Iran.
As part of broader banking legislation, the bill calls for reforming the CBI structure including its top management.
MPs have taken stock of the multiple problems arising from, and related to, the poor performance of banks such as unbridled inflation, excessive money supply and the CBI’s contentious governance.
Defending the bill, Mohammad-Hussain Hussain-Zadeh, blamed the “unrestrained private banks for the ruinous inflation,” underscoring the need for a vibrant central bank to monitor and streamline the private lenders.
Criticizing the CBI’s management structure, the lawmaker recalled that the economy had not grown in proportion to the mind-boggling money supply, the parliamentary news website ICANA reported.
Mohammad-Reza Pourebrahimi, another MP speaking in defense of the reform bill, said, “The performance of the central bank is the root cause of deficient economic conditions.”
Pourebrahimi, who heads the Majlis Economic Commission, highlighted the need to increase the regulator’s independence, protesting that “the CBI is dominated by the government.”
Elaborating his point he said, “If CBI reform is not prioritized we will increasingly witness fiscal imbalance and rampant growth in the money supply.”
Opponents
While proponents of the apparently delayed reforms have the upper hand, it also has strong critics in the legislature, government and the central bank.
Some MPs say the Majlis should delay discussing the bill at least until the next government takes office in August to be able to get an idea of the incoming administration’s position on proposals mentioned in the bill.
Ahmad Amir-Abadi referred to the provision calling for the central bank to be governed by a “high council” comprising financial experts and economists independent of the government. “This would make the government less responsive to the parliament.”
The Majlis-backed bill has been criticized by government officials for its potential for “unilateralism”. Opponents decry the fact that the parliament had not petitioned the views of monetary experts and informed opinion makers on an important national economic issue.
There is, however, unanimous agreement that the present banking law is obsolete and must be overhauled for better economic performance. The rules, regulations, procedures and guidelines belong to half a century ago and for all practical purposes have failed to protect the value of the national currency, the main duty of central banks.
The Majlis ratified outlines of the bill under the “Comprehensive Islamic Banking Bill” in December 2019. It has three main components: setting up a development bank, banking reform, and strong CBI governance.
Streamlining the CBI structure is a key aspect of the proposed legislation and MPs are trying to improve it by drawing on the experience of central banks in other countries.
In the framework of changes to the CBI governance, a high council will be at the top 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 executive members while the non-executive will include prominent experts in the banking, monetary, accounting, finance and legal fields.
The council will also replace the Money and Credit Council, the main monetary and banking policymaker. While members of both the MCC and the high council are selected by the government, either directly or otherwise, the latter have to be chosen mainly from independent “financial and monetary experts” unrelated to the government. This would reduce the government’s role and influence in CBI decision-making.
As per the bill, the government cannot remove the non-executive members of the high council. When a new government takes office, the president cannot replace the majority in the high council in one go. Replacing the council members would be gradual and over the four-year tenure of the government.
