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EghtesadOnline: Former governors of the Central Bank of Iran called on policymakers to recognize the independence of the central bank, otherwise it will not be able to play its mandate in managing monetary markets and stabilizing the economy.

Speaking on the 31th Islamic Banking Conference, Mohammad Hossein Adeli, a former governor, said policy and decision makers need to understand the importance of upholding the need and importance of an independence central bank.

"In the absence of such understanding, decision makers would simply be neglecting the law or violate it," he was quoted as saying by the CBI website.

Mahmoud Bahmani, a former CBI governor, stressed the importance of having an independent central bank for safeguarding the value of the national currency that has been in freefall for long.

"The role of banks and the central bank has always been underscored by governments…The Money and Credit Council, the top decision making body of the monetary markets is a place where almost ministers sit. This means that the government makes decisions about the central bank and the banking industry," Bahmani recalled.

He warned the new government about appointing CBI governors that are not familiar with the complexities of central banking as it would undermine the banking sector.

Valiollah Seif, a former CBI head, said the independence of the monetary regulatory body is paramount in almost all countries, noting that historically this has been a key factor in reducing the inflation rate.

Impending Bill

Central banks' independence can be broadly defined as the degree of freedom of the central bank to pursue monetary policy without political interference.

There has been much dispute about this issue in Tehran in recent years. The Rouhani administration submitted to parliament two sets of banking rules, namely a Banking Reform Bill and the Central Bank Bill in which the centrality of CBI independence was emphasized in unequivocal terms.

The bills have undergone several revisions but so far have not been approved by the parliament. Instead, lawmakers have designed their own reform plan with the intent of finding middle ground to overhaul the financial sector after almost three decades.

Regarding the administration structure, a “high council” will be atop the CBI and replace the governor who would be relegated to second position, the Majlis proposal states.

Members of the board will fall into two categories:  executive and non-executive. The governor and vice governor would be executive members, and non-executive members will include experts from the banking, monetary, accounting, financial management and legal fields.

This is while most economic experts say if this becomes law it will allow unwanted intervention of irrelevant bodies in banking affairs. It will also breach the law on the separation of powers as it proposes that the three branches (executive, legislature and judiciary) intervene in CBI affairs, which obviously would harm nit help its independence.

 

CBI economies