Hemmati believes that the interventions of central banks are
“market-oriented” and “equilibrium” and their tools are the
central bank’s foreign exchange reserves.
The Supreme Economic Coordination Council (SECC) held a meeting chaired by
President Hassan Rouhani and decided to grant “more powers to the Central
Bank of Iran (CBI) to implement the banking system reform program”.
The meeting also had other approvals: The Ministry of Economic Affairs and
Finance was obliged to quickly draw up the necessary plans to remove
barriers on the way of attracting and encouraging investment. The SECC
approved the orientations necessary for the reform of the banking system.
The plans of the ministries of energy and roads and urban development for
strengthening the infrastructure of the power plants and the equipment of
the national railway transport fleet were discussed and necessary decisions
were made on cooperation and acceleration of implementation of these plans.
According to the approval of the SECC, four new instruments have been
foreseen for the management of foreign exchange and monetary policy.
Accordingly, the CBI has been authorized to issue participations bonds in
foreign currency and local currency in the capital market, obtaining the
position of buying and selling in the second market and open market
operations. In open market operations, the CBI can turn government debts to
the banks into negotiable bonds. As for the fourth instrument, the SECC
decided to grant five-year residence permits to foreign nationals who make
an investment of at least $250,000 in Iran.
Meanwhile, Mohammad Reza Pour Ebrahimi, Chairman of Majlis Economic
Commission, was quoted as saying that in a session of the SECC attended by
the heads of the three powers we decided to increase the CBI powers to take
whatever measures necessary. One of the positive steps was to allow the CBI
to create balance in the resources related to non-oil exports and at the
same time be able to use the tools related to foreign exchange. He added
that the CBI intervention in handling liquidity tools in the area of foreign
exchange was another reason for the decline in the exchange rate, adding
that the new CBI governor has granted more powers to exchange shops.
Moreover, restrictions on transfer of foreign currency to the country have
been lifted and a large volume of foreign currency would enter the country.
These measures have caused the rates of foreign currencies to decline.
Referring to the effectiveness of new foreign exchange policies, experts say
that giving more authority to the CBI will make it more effective in
countering the offenses already committed by some non-oil exporters. They
believe that new monetary instruments can complement foreign currency
instruments and prevent inflation.
In addition to the special powers the CBI governor has received from SECC,
the remarks made by the Supreme Leader on other economic issues in a meeting
with the heads of the three powers assigned new responsibilities to the CBI.
The new CBI Governor Abdolnaser Hemmati, after the meeting, posted the
following on his Instagram page:
“The Supreme Leader emphasized on the adoption of serious and operational
measures and decisions to address five key economic issues. Of the five
cases, three are within direct responsibility of the CBI, namely the
problems of the banking system, liquidity and inflation. If we add the
foreign exchange issue, it will reveal the importance of the CBI’s
responsibility and its actions and plans for implementing the Leader’s
The CBI governor wrote: “The empathy of the honorable members of the
government in advancing CBI’s policies and the support of other two
respectable powers is a fundamental condition for overcoming the problems.
Hemmati also enumerated his plans for reforming the banking system as
follows: to control and direct liquidity; slow down the growth of inflation
and subsequently reduce it gradually; prioritize the intertwined problems of
the banking system and obtain the necessary permits for its gradual
improvement and network transformation. Due to the economic conditions of
the country, we have specific programs to help the engine of employment and
production, and in particular putting the foreign exchange market in order
and moving in the direction of a balanced exchange rate.
He said he will implement his plans in consultation with economic, banking
and foreign exchange experts, and the cooperation of the managers and
experts of the CBI and the banking system.
Hemmati’s comments on the reform programs of the banking system are
consistent with the views of economist Masoud Nili. He believes that the
interventions of central banks are “market-oriented” and “equilibrium” and
their tools are the central bank’s foreign exchange reserves. In fact,
government interventions in markets are not in the form of directives and
administrative affairs. Instead, the CBI, with changes in the supply of
foreign currency, will bring the variable to the desired level.
Nili has raised the “symmetrical intervention
of the CBI in the foreign exchange market”, which means that in some cases,
to prevent a decline in exchange rate, it buys foreign currency, and in some
cases to prevent an increase in exchange rates, it sells forex on the open
market. In fact, the CBI’s exchange reserves impose the symmetric
intervention on it.