Does Iran Have a Central Bank? Its Role and Operations

Iran has a central bank, officially known as the Central Bank of the Islamic Republic of Iran (CBI). Established in August 1960, it took over central banking responsibilities from Bank Melli Iran. Its primary role involves overseeing the nation’s financial system and implementing economic policies. The CBI serves as a foundational financial entity within the country’s economic structure.

Core Functions of the Central Bank of Iran

The Central Bank of the Islamic Republic of Iran (CBI) carries out several responsibilities for the nation’s financial stability and economic development. A primary function involves managing monetary policy, aiming to maintain the value of the national currency, the rial, and control inflation. The CBI also seeks to achieve equilibrium in the balance of payments and facilitate trade-related financial transactions to support economic growth.

The CBI has exclusive authority for issuing the Iranian rial banknotes and coinage, controlling the money supply. It employs various tools to implement monetary policy, including setting the reserve requirement ratio for banks. This ratio can range between 10% and 30% of their liabilities. The central bank also utilizes open market operations, buying and selling government bonds, to influence banking system liquidity and guide interbank interest rates.

Another significant responsibility of the CBI is regulating and supervising Iran’s banking system. This includes licensing financial institutions, overseeing their operations, and ensuring the banking sector’s stability. The central bank also ensures banks adhere to Islamic banking principles, which prohibit interest-based transactions and mandate profit-sharing models.

The CBI also manages Iran’s foreign exchange and gold reserves. These reserves help manage the rial’s exchange rate and support international trade. Additionally, the CBI acts as the banker to the Iranian government, managing public accounts and providing credit to state entities.

Governance and Operational Framework

The Central Bank of the Islamic Republic of Iran operates through a governance structure with several decision-making bodies. The General Assembly serves as a high-level oversight body. Its members include:

• The President
• The Minister of Economy and Commerce
• The Deputy-President for strategic planning
• A minister chosen by the Cabinet

This assembly provides guidance and approves significant policy directions for the central bank.

The Money and Credit Council (MCC) serves as the highest banking policymaking body. Its permanent members include:

• The CBI Governor
• The Minister of Finance and Economy
• Two ministers selected by the Cabinet
• The Head of the Chamber of Commerce
• The General Prosecutor
• Two lawmakers

The MCC is responsible for approving the monetary and credit policies proposed by the CBI annually.

The Governor of the Central Bank is the chief administrative authority, responsible for daily operations and policy implementation. The President of Iran appoints the Governor, based on the recommendation of the Minister of Economic Affairs and Finance, and with verification from the CBI’s General Assembly. The Governor serves a five-year term.

The CBI’s operations are guided by legal frameworks, including the Iranian Banking and Monetary Act of 1960 and the Monetary and Banking Law of Iran from 1972. The Islamic Banking Law of 1983 mandates that all banking operations adhere to Islamic financial principles, particularly the prohibition of interest. The central bank is considered an extension of the Iranian government, and its policies align with broader political priorities.