Majlis Approves Plan to Combat Banking Sanctions

EghtesadOnline: Members of Iran’s Parliament have ratified a single-urgency plan containing seven articles that propose measures to nullify or weaken the impact of sanctions the US plans to reimpose on the country’s banking and financial sectors in August.

News ID: ۷۸۳۲۵۱

14 July 2018

The plan, ratified on July 4, emphasizes the speedy implementation of measures that have already been proposed or pursued at various levels. It was passed after 103 MPs voted in favor and 67 opposed it.

It has now been referred to Majlis Economic Commission for further expert review, IRNA reported.

The plan’s final ratification will require another parliamentary vote on the details of the plan and a green light from the Guardians Council, Iran’s highest constitutional vetting entity, according to Financial Tribune.

“Under current conditions when major international banks refrain from clearing proceeds from Iran’s oil sales and mostly fear US penalties and sanctions, no indication of improvements in Iran’s banking ties with other countries can be seen. As long as Iran needs the financial systems of the US and Europe, not only will the pressures persist, but they will also increase,” the introductory section of the plan states.

Contents of the Plan

The first article of the plan stresses the need to clinch currency swap deals with countries conducting significant trade with Iran. It says this should be done in a way that discounts the need for “intermediate currencies such as the US dollar and the euro in payments received and made”.

It does not, however, negate the use of intermediate currencies or valuable metals or other goods and sources of energies strictly for the sake of accounting. Furthermore, it allows using the swap method in multilateral deals.

The second article of the plan obligates the Central Bank of Iran to execute three measures for reducing transaction costs and risks in domestic and foreign financial and banking transactions.

Firstly, the regulator is obligated to employ the latest technology and “distributed architectures such as blockchain technology and other related technologies” to establish and use “exclusive financial means” in bilateral or multilateral ties with other countries or unions.

Secondly, CBI is obliged to tap into the capacities of local systems such as Sepam (System for Electronic Payment Messaging) in national and international transactions and create access for foreign banks and credit institutions that wish to conduct business with Iran through the system.

Sepam holds a centralized processing core for foreign exchange interbank messages that are in conformance with SWIFT standards. It connects Iran’s local banks with the SWIFT network.

Lastly, the central bank has been tasked with undertaking cooperation agreements with countries, assemblies and unions, as well as regional and international banks and credit institutions that previously helped create financial messaging systems that run parallel to SWIFT.

If Article 3 of the plan gets the final approval in its current form, it will mandate the central bank to engage in bilateral or multilateral currency swap agreements for receiving and making trade payments “with at least 24 countries”. These nations have been listed as China, Russia, India, Pakistan, Turkey, Brazil, Iraq, Japan, South Korea, Azerbaijan, Afghanistan, Turkmenistan, Armenia, Qatar, Oman, Kazakhstan, Singapore, Thailand, Indonesia, Belarus, Sri Lanka, Lebanon, Syria and Malaysia.

Article 4 calls on CBI to prepare the grounds for integrating Iran’s bank card switch with the switches of the aforesaid countries so that their national currencies could be used in each other’s countries.

“In order to diversify and facilitate the country’s instruments and methods of payment, the central bank is obligated to pave the way for the creation and issuance of a variety of digital currencies with state and non-state backing,” Article 5 states.

The penultimate article of the parliamentarian’s plan calls on CBI to present a comprehensive report on the progress of clinching monetary agreements, establishment of means and number of messages sent, volume of transactions, number of banks and member entities.

Lastly, the plan stipulates that “the Foreign Ministry is obligated to cooperate in full with the central bank using its economic diplomacy capacities”.

At present, Iran has a currency swap agreement with Turkey, which came into force on April 16. The country is also eying Russia as its first partner in bank card integration.

On the other hand, the CBI-affiliated Monetary and Banking Research Institute has created a prototype for the nation’s first virtual currency in collaboration with the Ministry of Information and Communications Technology.