Iran is planning to rejoin the global financial markets and establish correspondent banks in Europe, promoting mutual gains for both sides, said governor of the central Bank of Iran on Thursday.
Addressing the 18th Euro Finance Week Conference in Frankfurt, Germany, Valiollah Seif said that his bank protects foreign investment in Iran by guaranteeing a safe return on any investment made in the country.
"Currently, international investors are allowed a 100% ownership of banks in free trade zones and 40% ownership on the mainland. We also have proposed founding a joint international bank to facilitate foreign investment," Seif said
"Iran's ten-year economic vision is based on reasonable macroeconomic policies and international cooperation."
He noted that short-term ties with other countries are not adequate because sustainable foreign investment is vital for Iran's banking industry, CBI's website reported.
"Following Iran's agreement with the six world powers [in July], international companies expressed their willingness to return to Iran, especially the financial sector," he said. "We are responsible for supporting their investments by stabilizing markets and securing returns."
"The CBI is implementing a series of reforms to maintain financial stability, increase the effectiveness of monetary policies and enhance the efficiency of bank loans," he added.
Seif added that the CBI is expanding its supervision on financial institutions according to international regulatory framework Basel III which includes overseeing capital adequacy, reserve requirement ratio and bank stress tests.
Post-Deal Banking
He seemed confident that the nuclear deal would have positive impacts on Iran's commercial environment. "Iranian officials are strong in their decision to implement the Joint Comprehensive Plan of action (JCPOA), which I believe would be instrumental in reducing investment risks in the country."
Noting that the sanctions had denied Iran's access to international banking for years, he said, "Using International credit cards is our people's right which we want to restore."
He referred to economic growth in Iran from -6.8 two years ago to 3% in 2014 and said, "The CBI believes that the country has the potential for over 3% growth moving to 8% within five years."
Forex Rates
Also in an interview with Bloomberg on the sidelines of the event, Seif said Iran plans to unify the rial’s exchange rate with the dollar after the nuclear accord signed with world powers is implemented.
“We have a very stable currency market, but to proceed toward a unified exchange rate requires accelerating the country’s access to foreign currency,” Seif said, “It can happen once the nuclear deal is implemented, maximum six months after that.”
The agreed lifting or suspension of sanctions on Iran is expected to begin in the first quarter of next year following verification that the country has met its commitments on curbing its nuclear program. The unfreezing of assets worth at least $30 billion and access to international finance and foreign direct investment may follow.
Under the terms of the deal, most of Iran’s banks will be reconnected to Swift, the global financial messaging system that facilitates bank transfers.
Iran has both an official exchange rate to the dollar and another rate that is used in unregulated markets. The rial traded at 35,830 per dollar on the street on Friday, compared to the official rate of 29,967 cited on the central bank’s website.
Depreciation
The rial lost about 80 % of its value in the year to late 2012 as a result of sanctions. After President Hassan Rouhani took office in the summer of 2013, the central bank has tightened credit and stabilized the currency.
The central bank’s role is to “smoothen fluctuations of exchange rates,” Seif said. But “if we allow the rate to be defined by the economic realities and decided by the market, the bank’s only role will be to prevent shocks,” he said.
Iran’s economy will expand less than 3% this year, with growth rising to 5% in the Iranian year starting March 2016 boosted by oil sales, industrial output and tourism, he said. Inflation will fall to “single-digits” next year, from 13% , he said.
Rouhani has said Iran needs $150 billion in investment to achieve the 8% economic expansion that can lower the country’s chronic youth unemployment.
