Iran Central Bank
Banking Industry Iran: current status, opportunities and threats
“BANK MARKAZI JOMHOURI ISLAMI IRAN” is the Central Bank of the Islamic Republic of Iran. The Central Bank of Iran (CBI) was established in 1960. The CBI is responsible for the design and implementation of the monetary and credit policies with due regard to the general economic policy of the country. The four major objectives of the CBI as stated in the Monetary and Banking Act of Iran (MBAI) are:
However, the CBI does not independently set monetary policy nor can it conduct proactive monetary policy. For example, the government, which is the main consumer of money, is in almost full control of the CBI – the main producer of money, with approval from the Majlis (The Iranian Parliament) required before the CBI can issue participation bonds.
Under the new administration, there is an acknowledgement of the need to reform the financial sector, including improving the independence of the CBI. However progress is likely to be slow, with disagreements between the administration and the Guardians Council on the level of independence necessary.
The currency of Iran is the Iranian “Rial”. Whilst prices of goods are virtually always written in Rials, Iranians commonly verbally express prices of goods in ”Tomans“, where one Toman equals 10 Rials. The Toman is not an official unit of Iranian currency.
The symbol for IRR can be written Rls, and ﷼ .
Iran has operated a multi-layered exchange rate system, as a way to manage and target the pain of sanctions over the last few decades. Historically, 7 distinct exchange rates were in operation, before being reduced to 3 in 1991 and eventually 1 in 1993. However, each time there has been pressure on the exchange rate, the government has reverted back to a multi-rate solution.
Currently there are two exchange rates in operation
The effect of the two different rates is to provide preferential access to Dollars – which due to sanctions are in short supply – to basic necessities. This allows goods to be imported at a more favorable exchange rate, reducing the cost to domestic consumers. The official exchange rate is typically applied to goods including food and medicines as these are mostly consumed by the poorer consumers in Iran. The TSE/Parallel is applied to almost all other imports and exports and should be viewed by the international community as the key rate of exchange.
|Date||CBI Exchange Rate||Market Exchange Rate|
CBI and Market Exchange Rate (average) – USD/IRR (2011-2016)
The introduction of modern payment instruments can be traced back to early 1990s where commercial bank of Sepah launched its Aber Bank (Debit Card) and ATM services. Since then almost all Iranian banks have provided their customers with the card payment services focusing on cards with debit function and ATM services to tackle the problem of heavy branch traffics.
The interbank card switch (SHETAB) was introduced in 2002 and now all card issuing banks in Iran are connected to the center; building up a uniform card payment network where all issued cards are accepted in all acquiring terminals.
Payment/Banking Services Instruments in Iran Banking System
Previously, debit and credit cards in the country can only be used on ATMs or POS machines that were provided by the issuer bank. Shetab changed this and now allows debit and credit cards to be accepted at any ATM or POS terminals in the country, and even in online payment portals. As a result, Iran is now one of the countries with the highest Debit Card penetration rate at 92%. Credit Card penetration however remains low, at only 3.1%. Further, online monthly transactions in the country have grown during the last years, as more customers use their debit and credit cards to pay online.
SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is used by nearly every bank around the world to send payment messages that lead to the transfer of money across international borders. It provides a wide range of services including transmitting letters of credit, payments and securities transactions among 9,700 banks across 209 countries.
However, in March 2012 Iranian banks were disconnected from the system after the implementation of the US-led sanctions against the country. Accordingly, all 30 Iranian banks were blocked from using SWIFT services, literally cutting Iran off from the global banking system. The implication on the currency was significant, with the TSE/Parallel based Rial depreciating by more than half.
A key part of the recent negotiations of the JCPOA, included the resumption of access by both the CBI and Iranian financial institutions to the SWIFT network.
Following its implementation in January 2016, most Iranian banks have been reconnected to the SWIFT network and can engage in international transactions. However foreign banks remain concerned about doing business with Iran, as the US still retains sanctions in place which predate the nuclear crisis and worry they could still be targeted by the United States.
Re-engagement with the banking world through the SWIFT system is vital for Iran’s trade, particularly for the country’s oil exports and broader stability of its currency. Whilst we expect progress to be slow at first, the signs are positive. Anecdotally, Germany’s DZ Bank, Belgium’s KBC and Austria’s Erste Bank, Oberbank and Raiffeisen Bank International have already commenced cross boarder transactions for their clients in one form or another.
It is prudent to highlight that as long as the 1995 trade embargo by the US remains in place, no US Dollar transfers will be able to take place, as these transactions are required to be cleared in the US.