Central Bank & Independent Monetary Policies

Iran central bank independent of the executive branch is the key to a sustainable financial reform and enforcement of monetary policies. If Iran Central Bank (ICB) reports to the legislative branch rather than the executive branch, it will have the necessary power to enforce its rules and policies. The special interest groups are very powerful in Iran and ICB is not able to enforce its policies under its current organizational chart.

Fiscal and Monetary policies are designed to promote a healthy growing economy. But each uses different tools for achieving the same goal. Fiscal policies are focused on implementing their predefined budgets, while monetary policies are focused on predefined interest and inflation rates. Although monetary policies are basically coordinated with fiscal policies, at the same time, they should be structurally independent of each other and report to the separate branches of government to be fully effective.

To resolve the current banking crisis, we should enhance the ICB organizational position. We have to reorganize its upper organizational chart and make it an independent institution which reports to parliament or superior power. This is the main key to start a sustainable and meaningful financial reform in the country.

I have been writing and talking about the necessity of having an independent and powerful central bank for many years. A central bank which could stand against the pressure groups and implemented its rules and policies powerfully.

Fiscal policies are working to promote the economic growth and monetary policies are making sure that the growth is sustainable and healthy. While the government is spending, the central bank is monitoring and controlling the volume of money to avoid inflation/deflation.

So, if we want a healthy financial system in Iran, the first step is to correct the central bank organizational chart and let it become independent of the executive branch and start reporting to Parliament. Otherwise, the existing powerful pressure groups will make it difficult for the central bank to face the current banking problems and enforce its rules and policies as always.

Tuesday, Sep 12, 2017