Iran's CB Looking for Ways to Evade Sanctions

EghtesadOnline: Governor of the Central Bank of Iran has outlined six monetary and banking plans to help fend off the new US economic sanctions.

News ID: ۷۴۷۲۱۹

04 May 2019

Abdolnasser Hemmati in an Instagram post Friday said the CBI is stepping up efforts to control currency rate volatility and curb the galloping inflation.

Hemmati spoke of a relatively less-publicized plan -- setting up a bartering system to facilitate trade with Iranian partners overseas.

Bartering goods can and should help when almost all foreign monetary channels are closed due to the US banking restrictions, Financial Tribune quoted him as saying.

“The CBI is striving to create a barter system in tandem with the Industries Ministry and Customs Administration.”

After abandoning Iran's 2015 nuclear deal last year, the United States re-imposed tough sanctions and asked other countries to cut trade ties with Iran or face consequences.

The CBI boss said the regulator is also stepping up efforts to build financial mechanisms with neighbors and friendly countries.

Iran is in talks with trade partners and other regional and non-regional states to find ways to bypass the hostile US sanctions. Conducting non-dollar trade, such as barter, are among options under consideration.

Bartering is system in which traders directly exchange goods or services for other goods or services without using money.

Other Plans

One plan calls on the regulator to stabilize the currency market through the much-touted regulated forex market and improve the efficiency of the integrated forex deal system, locally known as Nima.

Nima is a platform where exporters sell their currency earnings at prices lower than open market rates and importers buy it.

The CBI chief said the new policies include ways to improve non-oil exports and encourage exporters to bring back export earnings to the economic cycle.

He stressed the need to supply foreign currency for importing essential goods as part of the government plan to protect the vulnerable strata.

Due to the decline in oil revenues due to the unilateral US sanctions, non-oil exports have gained added traction for policymakers to partly substitute the loss in oil income.

Iran’s economy is largely dependent on crude oil exports, but has been diversifying in recent years due to price volatility in the international oil market plus calls by academia and scholars to wean the economy away from hydrocarbons.

Experimenting with the reward and punishment policy, the CBI has often tried (with limited success) to convince exports to return their earnings to the country. It offered new incentives in February.

Promoting Transparency

The long-awaited regulated forex market is slated for launch later this month.

It will be launched with the participation of banks and certified exchange shops under CBI oversight. It seeks to create and organize a transparent market where currency will be traded in cash via an electronic platform.

As another measure, Hemmati pointed to the open market operations to be launched to help regulate yields from Islamic bonds.

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.

Earlier in the week, Hemmati said within the new monetary policies and using OMO, the CBI seeks to draw on short-term interest rates to check inflation in a systemic and sustainable manner.

On much-mentioned move by the CBI is pushing banks to provide working capital to manufacturing units.

Based on the latest CBI report, Iranian banks gave $30.31 billion during the previous fiscal (2018-19) to help raise the working capital of manufactures and trading companies. The amount accounted for 55.8% of the total loans paid in the period.