Financial experts and policymakers who had convened for a second meeting to discuss banking strategies after the sanctions are lifted if a nuclear deal is finalized by June 30 sounded more vocal than ever in demanding a shakeup in the banking system.
They unanimously agreed that a return to pre-sanctions model of banking is no longer feasible and the current model is also in need of a makeover to adapt to emerging trends. As far as the pundits at the meeting were concerned, the countdown to a new banking era has begun.
The primary message of the meeting could be summed up in a strong demand to end the isolation of banks which was brought on by nuclear-related sanctions and prodding them into embracing "a new design" which would pave the way for their smooth return into the international network of banking, according to a report published on Wednesday by Financial Tribune sister newspaper Donya-e-Eghtesad.
The event which was dubbed 'The Effects of Ending Sanctions Against the Central Bank' had been organized by the Money and Banking Research Center of the Central Bank of Iran.
Embargo
A review of the history of sanctions was deemed necessary in order to get a picture of what lies beyond the horizon. Hamid Ghanbari, the head of the CBI research center traced the sanctions on the Iranian financial system to almost 35 years ago at the beginning of the Islamic Revolution and the US Embassy hostage crisis. The embargo which was slapped by the US government was expanded overtime until 1995. Any company or individual who made an investment of more than $20 million in Iran became the subject of heavy fines. The next blow came as the nuclear-related sanctions took off in 2006 and reached their acme in 2012 when the CBI was banned by the European Union to make money transactions.
Ghanbari noted that by drawing lessons from the sanctions era, the role of the CBI can be redefined to highlight its role as a monetary policymaker, since the main reason that the CBI became the target of sanctions was its alleged role in assisting the government in its financial activities.
"This prompted us to change course and think of a possible separation of services in the banking system" Ghanbari said. He added that if the central bank is transformed into a policymaker and nothing more, then it can stave off such sanctions.
Opportunities
Farhad Nili, the head of the Money and Banking Research Center who is also an advisor to President Hassan Rouhani, said when a country's central bank is sanctioned, all the foreign assets of that country is in effect frozen.
He noted that this has left a country like Iran with "compulsory savings" overseas which he said should be seen as an opportunity to be utilized in a prudent way when those savings are unleashed.
He also urged the banks to pull themselves up from the backward state that has befallen them because of the sanctions, saying that banks should brace themselves for "more action".
"In a post-sanctions era, banks should be able to display the professionalism that is required of them and come out of the sidelines and become key players in the international arena", Nili said.
He added that if before the sanctions professionalism was a "choice", in a post-sanction era, it would be a "must".
He cautioned that a reverse to "huge imports" with the flow of foreign currency into the country after Iranian funds are unblocked, would be "killing all the opportunities".
Sustainable Growth
Nili observed that since the Iranian banking system has no "substantial" foreign debts, the country is more immune to currency shocks than other nations.
He referred to countries like Japan, Britain and Turkey whose debt crisis had created serious problems for them and said with a GDP of $350 billion and huge gas and oil reserves, Iran has little foreign debt.
"With these in mind, nothing is more pivotal than fostering sustainable growth in the country and everything else comes second", Nili maintained. He attributed much of the slowdown in the years 2011 and 2012 not to the sanctions, but rather to "pervasive mismanagement".
"We have a capacity for a growth as high as 8%'', he said, "provided that we replace 'capital' with 'improved efficiency' as the basis for our growth".
