Iran's Regulated Forex Market to Open in Mid-April

EghtesadOnline: The governor of the Central Bank of Iran said Sunday that the long-awaited Regulated Foreign Exchange Market will be launched by mid-April.

News ID: ۷۴۶۹۹۳

08 April 2019

Rules for launching the first-ever forex market in Iran were approved in January by the Money and Credit Council - a top financial decision-making body headed by the CBI boss Abdolnaser Hemmati.

The move is seen as another CBI measure to regulate the chaotic forex market dominated by informal traders. It seeks to create and organize a transparent market where foreign currency will be traded in cash through an electronic platform in the framework of MCC regulations, according to Financial Tribune.

Hemmati, who was addressing reporters, said the members of the board of directors of the new market have been appointed, IBENA reported.

The board comprises five legal entities, including a subsidiary of the Informatics Services Corporation (owned by the CBI since the bank cannot directly sit on the board), Iran Fara Bourse (a junior stock market), the Association of Bureaux de Change Operators of Iran, the Association of Private Banks and the Association of Public Banks.

Hemmati said earlier that the market will be launched with the participation of banks and certified exchange shops under CBI supervision. “Focus of the market will initially be on cash transactions.”

Hemmati on Sunday stressed the need for a stable forex market as a prerequisite for business owners to chart their future course of action in a calm and stable economic environment, reiterating that the current “forex rates are far from real and they would not last long.”

He emphasized that, as in the previous year, the focus of “enemies” is on monetary and forex markets and promised appropriate measures to defend the forex market against turmoil and volatility. “The enemy failed to fulfill its plan to disrupt the forex market and banking system last year” he noted.

OMO

The governor said the CBI would launch the Open Market Operation during the current Iranian fiscal (March 2019-20) as part its latest attempt to regulate the monetary market. He said the plan is on the MCC agenda.

“In OMO the CBI determines a range for [interbank] interest rates and allows banks to operate within the specified range,” he explained.

OMO is a financial instrument through which central banks buy and sell securities in the open market to expand or reduce the supply of money. Within the OMO, the CBI buys government bonds to increase the money base (cash reserves), thereby reducing inter-banking lending rates. On the other hand, selling government bonds decreases the base money and raises interbank rates.

The initiative is seen as part of the current fiscal budget law. As per the law, “in order to implement the monetary policy and control interest rates and inflation, the CBI will launch the OMO and trade in Islamic bonds issued by the government. Banks can hold the bonds as collateral to borrow from the CBI.”