Amir Naghshineh-Pour, Iran’s Banking and Monetary Problems Iran’s Banking and Monetary Problems

Iran has had many self-imposed economic crises. Many of which relate to the poorly managed banking system as well as flawed monetary and fiscal policy. Inefficiency of the banking-monetary system in Iran is a well known fact. A complete overhaul of the current system should be one of the essential priorities of any economic reformation and development. The banking-monetary system of any country has a key role in its economic efficiency and strength, price stability, production, and economic growth. The main functions of a banking-monetary system are to provide fiscal resources, to prepare ground for optimal allocation of capital in the economy, to distribute the wealth in the best possible way, and to ease economic development. This is particularly important in Iran because capital markets are underdeveloped. The Iranian banking-monetary system suffers from both structural and ideo-political (ideological and political) problems. On the structural side, the current scheme is rather primitive. There are neither inter-banking relationships nor appropriate monetary tools to respond to various economic circumstances nor any open market operations to properly control the money supply. On the ideo-political side, there is no free and healthy competition among private and state run banks. Banks are often forced to implement central bank’s and government’s policies with no regard t