Iran's CB Governor: Banking Reform First, Redenomination Afterwards

EghtesadOnline: The governor of Central Bank of Iran says the initiative to remove four zeros from the national currency will take up two years because first the legal and technical infrastructure must be in place.

News ID: ۷۴۶۴۴۰

08 January 2019

Outlining details about his proposal on the CBI website,  Abdolnasser Hemmati said Monday that the measure is part of a comprehensive reform of the bloated banking industry with efficient monetary and supervisory tools.

He emphasized that the much-awaited reforms will come first and lopping off zeros from the rial afterwards.

“After going through legal formalities, the new money will be introduced gradually replacing the old banknotes ”, he said, adding that the printing costs would be much cheaper than the current notes, Financial Tribune reported.

On the merits of the decision, he said dropping zeros will “correct the parity of the rial and enhance its credibility internationally.”

He said such moves along with other measures was a starting point for crucial economic reforms in most countries in the past.

In a meeting with a group of lawmakers earlier this week, the CBI said the regulator has proposed to the government to lopg off four zeros from the rial. Hemmati said if and when endorsed by the government the proposal will go to parliament to become law.

Expert Doubts

However, economic experts have cast doubt on the much-publicized perceived plus points of the proposal. Some note that the economy is already saddled with much more than it can handle and coming up with new and complex proposals will do nothing to improve the  situation.

One veteran banker told the Financial Tribune that the idea of getting rid of zeroes simply lacks logic and not a prescription the present state of the economy demands.

Ahmad Hatami Yazd, a former CEO of Bank Saderat, said “Wiping out zeros or changing the monetary unit from rial to toman has nothing to do with the need to create jobs, boost domestic production, tame inflation and reduce the unprecedented liquidity.”

He said the only merit of the initiative would be “the ease with which financial records are kept and calculations are processed by banks and companies because they will  deal with smaller digits.”

Hatami Yazd recalled the experience of similar proposals,  saying one was made by the government of former president Mahmoud Ahmadinejad his economy minister Shamsodin Hosseini.

He said, in the next government when Valliollah Seif came to the CBI, the idea was floated once again, calling the latest scheme proposed Sunday as futile at best.

The banker said given amid the mountain of economic problems the country is now facing, the plan to remove zeroes from the rial, which indeed would be a costly enterprise, is strange and surprising in the extreme.

“In the current circumstances we are barely able to supply food and medicine,” for the country of 80 million people, he told the Tribune.

“The CBI and its experts would do better to spend time and energy to come up with measures to correct the  ailing banking system and other critical issues like implementing the recently approved money-laundering law.”

He rejected the initiative as a form of “theatrics” than an effective measure that could cope with unemployment, interest rates and building normal working relations with international banks.

“Even though some countries have done this before, like Turkey and Venezuela, in the end this is just a show-off,” he claimed.

One urgent issue Hatami Yazd believes the regulator must put on its agenda is increasing the capital of banks and overhauling accounting standards and procedures to make them “compatible with modern banking”.

He recommended CBI officials to develop mechanisms needed to implement the money-laundering law approved this week by the Expediency Council because “the image of the country is in ruins due as only Iran and North Korea are on the black list of the Financial Action Task Force”.

The Expediency Council, a powerful body that resolves disputes between parliament and the Guardian Council, on Saturday approved the amendment to Anti-Money Laundering Law.

The bill was passed by parliament last September as part of the legislative push by the Rouhani administration to update laws in line with international norms and to especially meet an action plan proposed by the inter-governmental Financial Action Task Force.