Proposed Law Gives Clerics Control Over Iran’s Central Bank

Former officials of the Central Bank of Iran (CBI) have opposed a law that would give a clerical council control over the bank’s monetary and economic policies.

In a letter addressed to the speaker of the parliament, Mohammad-Bagher Ghalibaf, former officials pointed out that Supreme Leader Ali Khamenei has twice before “directly or indirectly” stopped the proposed legislation and asked Ghalibaf to remove it from the parliament’s agenda.

The signatories of the letter protested that a provision in the law would set up a clerical council within the central bank that would supersede all other decision-making mechanisms and in fact would set monetary policy. This they argued, would strip the bank of its ability to professionally execute its duties as the guardian of the national currency and protector of the country’s monetary stability.

The letter which was released to the media this week argued that the proposed legislation focuses on transformation of the central bank's structure and monetary policies and fails to offer any new solutions or initiatives that could satisfy high-ranking religious authorities’ and the people’s demand for the elimination of interest and resolving the problem of riba.

Riba, a concept meaning usury or charging unreasonably high-interest rates, is prohibited under Sharia law. Lending money, according to Sharia, should be a charitable act with no interest involved, rather than making profit for the bank that could lead to exploitation and loansharking.

However, this religious concept is incompatible with modern economic realities and bank interests are not only common in Iran but sometimes quite high.

“The purpose of [establishing] clerical councils in [banks in] all Islamic countries is supervising the execution of Islamic-type contracts and elimination of interest from financial and credit facilities, not setting monetary, financial, and economic policies and [dealing with the issues] of inflation and liquidity,” the letter to the parliament speaker said.

The letter was signed by over 130 former officials including former central bank governors Akbar Komijani, Mahmoud Bahmani, Valiollah Seif, Tahmasb Mazaheri, and Mohammad Hossein Adeli, spanning three decades, as well as former bank board members and executives of other state and private banks.

The former banking officials also suggested that the central bank be given 18 months to come up with its own solutions and propose any required legislation through the government.

In recent years the CBI has lost its professional independence, being forced by government to print money and create a huge money supply that has led to 54-percent inflation rate.

After the Islamic Revolution of 1979, the Iranian banking system was altered to accommodate Islamic laws, particularly the ban on interest. Since then, authorities have resorted to various solutions to justify paying and charging interest without being accused of riba.

One of the solutions that banking authorities and high-ranking clerics agreed on was to redefine the contract between the bank and the individual or company taking a loan to conform with the Islamic notion of Murabahah which means cost-plus financing as well as other similar contracts.

In Murabahah contracts, the two sides agree to the cost and markup of the loan, which in essence is interest coated with religious jargon.

Besides banks and finance and credit institutions, there are also Islamic non-profit granting funds in Iran called Gharzolhasaneh (no-interest charity) funds.

All Iranian banks charge interest that is approved by the Central Bank at least once a year in proportion to the inflation rate and demand high value collateral items such as real estate.