Iran's Central Bank at Risk of Absolute Clerical Control

According to several media outlets in Tehran, a text titled 'Islamic Republic Banking Law Proposal' has been prepared by some representatives of the ninth parliament, which, if approved, will bring significant changes towards a more Islamic banking system in Iran. We asked economic analyst Fereydoun Khavand whether this proposal could become law given that the ninth parliament's term ends in a few weeks. 'This proposal has been presented by several conservative representatives of the ninth parliament, some of whom are prominent economic figures in the current legislative body, including Ahmad Tavakoli and Elias Naderan. The initiators of this proposal apparently decided to use Article 85 of the Constitution for its swift approval. Based on this article, the parliament can delegate the authority to enact certain laws to its internal committees in urgent situations, and the proposed 'Islamic Republic Banking Law,' which is urgent, has been assigned to the 'Money and Capital Market' committee, which can approve it in a short time without being presented to the full parliament. If this happens, Iran's banking system will face much more serious problems than today, and the situation will worsen, especially for the Central Bank of the Islamic Republic. The goal of those who prepared this proposal is actually to strengthen clerical oversight over the country's banking system.' But the banking system in Iran has been Islamic since the early years after the Islamic Revolution. Will the introduction of this new proposal to the parliament intensify the Islamic nature of Iran's banking system? The Iranian banking system is based on the 'Usury-Free Banking Operations Law' passed in 1983. Since then, there has been extensive debate among interpreters of this law regarding whether interest is the same as usury and whether a banking system can operate without interest, and apparently, this debate remains unresolved, with religious circles raising many questions about the legitimacy of the current interest rates in the country's banking system. The recently proposed plan includes a major innovation: a jurisprudential council that will effectively oversee all powers of the Central Bank, from decision-making to implementation and oversight. The five clerics participating in this council will effectively control the Central Bank due to their greater weight. In other words, if this proposal becomes law, clerics in the Central Bank will have veto power. Will the clerics on the jurisprudential council have any responsibility regarding the Central Bank's decisions, including in terms of inflation? Apparently, under this proposal, the clerics on the council will have no responsibility for the consequences of the Central Bank's policies. Instead, the officials of the Central Bank, primarily the head of this institution, who operate under the clerics' oversight, will be responsible and accountable. If this proposal becomes law, especially in the last weeks of the ninth parliament, the remnants of the independence of Iran's Central Bank will also be lost. Given all the problems weighing on Iran's banking system, from bad debts to corruption and the risk of bankruptcy, the establishment of the clerical council in the Central Bank will double the problems. Furthermore, the approval of this proposal and its announcement could deal a new blow to Iran's international banking and monetary relations.