Iran’s monetary and financial arrangements were initially underdeveloped but functioning, then adversely affected by Islamic revolution and war which entail a reclassification from loosely structured to unstructured discretion; subsequent reforms brought a return to loosely structured discretion, but monetary policy instruments remained limited and largely indirect; recurring use of the exchange rate as a nominal anchor in the first two periods gradually gave way to increased exchange rate flexibility.

Years Targets and attainment Classification
1974-79 exchange rate heavily managed with margins vs USD and/or SDR, and multiple exchange rates for different transactions; substantial banking system, partly private, but money and bond markets underdeveloped; monetary policy instruments used include rediscount rate, reserve requirements, credit controls; monetary growth dominated  by government domestic spending (partly in response to 1973-4 oil price rise, with policy designed to maximise absorption and promote growth); Islamic revolution 1979 loosely structured discretion LSD
1980-98 1980-88 (war with Iraq): increase in number of official exchange rates plus tight import controls (import compression), leading to massive premia in parallel forex market; banking system nationalised and consolidated from 1979, Islamicised from 1983; central bank relies on credit ceilings and guidelines, and some Islamic instruments; monetary growth strongly affected by fiscal deficits; inflation variable but double-digit, high 1986-8;

1989-1998: initial liberalisation including reduction in number of exchange rates, some import liberalisation, and abolition of credit ceilings (sectoral guidelines retained) without introduction of indirect instruments; exchange rate unification and float 1993 abandoned after a year in favour of renewed import compression and credit controls, which leads to revived parallel market premium; money growth and inflation hard to control; US sanctions from 1995

unstructured discretion UD
1999-2017 new government 1998 plans fresh liberalisation including end of bank-by-bank credit ceilings (but central bank still has to approve most loans), expansion of government and central bank participation papers, term deposit facility for banks at central bank, licensing of private banks; exchange rate unification (with managed float) and some trade liberalisation achieved 2002 (via increasing role for forex exchange within Tehran Stock Exchange) and interbank forex market set up, but development of indirect monetary instruments and interest rate deregulation stalled, monetary impact of fiscal operations is significant, monetary growth remains often loose and inflation typically in double digits; new government from 2005 shifts focus from liberalisation and  reform to use of higher oil revenues for social needs; some reforms continue including banking supervision, bank privatisations; major subsidy reform late 2010 and tightening of US and international sanctions 2012 lead to rise in inflation, slower growth and temporary return of multiple exchange rates; new government 2013 is more inflation-averse and more open to reform; nuclear deal 2015 leads to lifting of many but not all sanctions in January 2016, and plans for reform of central bank autonomy, development of money and bond markets, use of interest rates as policy instrument, eventual exchange rate reunification loosely structured discretion LSD

Selected IMF references: RED 1975 pp64-6, 92-3, 70; RED 1978 pp31, 34-8, 49-52; SR 1978 pp2-3, 5-6, 7-8; RED 1990 (first consultation since 1978) pp39-48, 59-67; SR 1990 pp7, 16; RED 1991 pp42-3; SR 1991 pp8, 10, 15; RED 1993, pp47-8, 52, 63-7, 74-6; SR 1995 pp9-10; RED 1998 pp33-5, 42-4; RED 2000 pp9, 29, 33-4, 41-3; SR 2000 pp13-14, 15, 30; SI 2002 pp7-10; SI 2004 pp55-62, 68; SR 2006 pp16-17, 22; SI 2014 pp22-31; SR 2014 pp5-9; SR 2017 pp4, 15-17; SI 2017 pp11-15; SI 2018 pp3-9; SR 2018 pp15-16.

Additional references: Pesaran (1992); Karshenas and Pesaran (1995); Pesaran (2001).

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