ICCIMA emphasizes the importance of allowing the private sector to have representatives in the central bank.
ICCIMA emphasizes the importance of allowing the private sector to have representatives in the central bank.

ICCIMA Underlines Central Bank Independence

The Iran Chamber of Commerce has published an analytical report, urging the government to ease its hold over the Central Bank of Iran

ICCIMA Underlines Central Bank Independence

The Center for Economic Research and Studies with the Iran Chamber of Commerce, Industries, Mines and Agriculture in a comprehensive report, has explored the role of monetary policy in economic decision-making, comparing the different tools employed by central banks throughout the world and Iran's status among them.
The report has been published in line with "enhancing the understanding of businesses with economic concepts and recognizing conditions of Iran's economy and those of other countries," according to the official news website of ICCIMA.
It starts off by looking at instruments of monetary policies, as they are among the most important macroeconomic policies and exert direct and indirect influence over the market.
The report identifies open market operations, bank reserve requirements, lender of last resort, quantitative easing and overnight interbank interest rates as significant instruments used worldwide.
It then moves to instruments of monetary policies currently used in Iran, which help control bank interest rates, credit cap and special deposits with the Central Bank of Iran.
When the Usury-Free Banking Law was first implemented in Iran some three decades ago, the Money and Credit Council, a major decision-making body affiliated with CBI, was put in charge of setting bank rates.
MCC's latest decision on the rates dates back to June of last year when it set deposit and interest rates at 15% and 18% respectively.
The report elaborates that devising a credit cap is an instrument that actively directs credit toward a specific sector by creating limitations on the amount of credit allocated to different businesses.
The central bank holds such a mandate in Iran and it last used it when it notified the funding priorities of Iranian banks in early June and announced that the main beneficiaries of a stimulus package worth 300 trillion rials ($8 billion) will be small- and medium-sized enterprises.
According to the Usury-Free Banking Law, notes the report, MCC approved in 1998 regulations allowing for opening of special deposit accounts by lenders with the central bank, which was mainly undertaken with the aim of controlling liquidity by absorbing the excess assets of banks.

Weak Expertise
However, as the main point of the report is to analyze and review monetary policymaking entities, it directs its attention toward introducing the history, mandates and workings of central banks.
In this part, it reviews Bank of England, US Federal Reserve, Sweden's Riksbank, which is the oldest central bank in the world, Norges Bank of Norway and Bank of Japan.
The ICCIMA report then studies developing countries and emerging economies, particularly those of Malaysia, South Korea and Singapore.
It then goes on to describe the monetary policymaking entity in Iran, the central bank, and reviews laws and regulations that endows it independence. Furthermore, it analyzes the structure of MCC, noting that of its 14 members, six members are direct representatives of the government.
"Experiences of other successful countries in monetary policymaking show that members of policymaking entities are experts with a deep grounding in economics and financial matters," says the report, adding that compared with those countries, "the presence of expert members in these entities in Iran is weak".
What is more, a review of the monetary and banking regulations of the country shows that "the configuration of members of the council after the [Islamic] Revolution [in 1979] has become highly governmental".
However, adds the report, the Fifth Five-Year Development Plan (2011-16) took minor steps toward reducing this government influence.
The analytical report concludes that the monetary policymaking entity in Iran, i.e. CBI and by extension MCC has less independence when compared to developed countries and only a small number of Money and Credit Council members are certified experts.
The report emphasizes the importance of increasing the independence of central bank and allowing the private sector to have representatives in the monetary policymaking entity in order to "reduce any harm resulting from the decisions of policymakers" to non-public sectors of the economy.


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