Central Bank of the Islamic Republic of Iran (CBI)

Overview

The Central Bank of the Islamic Republic of Iran (CBI) is the central bank and primary monetary authority of Iran. Content for this section is being enriched from official sources. The Central Bank of the Islamic Republic of Iran (CBI) in Iran has regulatory functions documented in adjacent sections of this profile.

Basic Identity

Classification

Inclusion Justification

What This Entity Oversees

Central Bank of Iran

Overview

The Central Bank of the Islamic Republic of Iran, established in 1960, serves as Iran's monetary authority operating within a unique institutional context defined by Islamic banking principles, international sanctions, and geopolitical isolation.

Current Leadership:

• Governor: Mohammad-Reza Farzin (appointed December 29, 2022; reappointed October 2024)
• Tenure Focus: Sanctions adaptation, domestic payment system resilience, alternative financial channels
• Operational Context: Severe international isolation due to US and multilateral sanctions; limited engagement with global financial architecture

Strategic Context: The CBI operates under comprehensive US sanctions, international isolation, and significant technical constraints resulting in developing parallel payment infrastructure and alternative currency arrangements.

Legal Basis

Monetary and Banking Act (1972):

The primary legislative framework governing the Central Bank of Iran:

Institutional Structure:

• Central bank authority over monetary policy formulation and implementation
• Banking sector regulation and supervision framework
• Currency issuance and management
• Foreign exchange control authority

Core Responsibilities:

• Implementation of Islamic banking principles
• Price stability and economic growth support
• Banking system soundness and stability
• Payment system development and oversight

Special Authority:

• Islamic finance compliance enforcement
• Sharia-compliant banking operations verification
• Interest-free banking implementation oversight

Monetary Policy

Rial Management under Sanctions:

The CBI manages Iran's currency and monetary policy within a constrained environment:

Exchange Rate Structure (Multi-Rate System):

• Official Rate: Central bank-set fixed rate (subject to periodic adjustments)
• Market Rate: Parallel market exchange rates significantly above official rates
• Trading Rates: Various institutional rates reflecting market conditions
• Significant Divergence: Parallel rate often 2-5x official rate, reflecting sanctions impact

Factors Driving Rate Instability:

• US secondary sanctions on foreign banks dealing with Iran
• Capital controls limiting currency supply
• Inflation pressures from import constraints
• Speculative pressure on currency
• Foreign exchange reserve limitations

Monetary Policy Tools:

• Policy rate (interest rate) setting (within Sharia-compliant framework)
• Reserve requirement adjustments
• Open market operations (constrained by limited counterparties)
• Direct credit operations to select institutions
• Import financing management

Inflation Management:

• Significant inflation pressures from currency depreciation
• Import inflation from sanctions-driven scarcity
• Wage and price dynamics management
• Money supply control challenges

Banking Supervision

Supervisory Framework (Islamic Banking Basis):

The CBI supervises Iran's banking system through religious and prudential regulations:

Licensed Institutions:

• Islamic commercial banks
• Specialized banks (development, housing, etc.)
• Islamic credit institutions
• Non-bank financial institutions

Regulatory Standards:

• Islamic Sharia compliance (prohibition of interest/riba)
• Prudential regulations adapted to Islamic banking
• Capital adequacy requirements
• Liquidity and reserve standards
• Asset quality and risk management

Supervisory Tools:

• On-site examinations and inspections
• Off-site monitoring and analysis
• Corrective action authorities
• Governance and management assessments
• Compliance enforcement

Islamic Banking Framework Specifics:

• Murabaha (Cost-Plus): Mark-up based financing rather than interest
• Musharaka (Profit-Sharing): Partnership-based financing structures
• Ijara (Leasing): Lease-based financial arrangements
• Takaful Insurance: Islamic insurance principles compliance

Payment Systems

Domestic Payment Infrastructure (Sanctions-Constrained):

The CBI operates Iran's payment systems with minimal international connectivity:

Shetab System (National Card Switch):

• Established in 2003
• Integrates all card systems within Iranian banking industry
• Only national card switch with universal bank membership
• Operates independently of international card networks (Visa, Mastercard blocked by sanctions)

SHAPARAK (Electronic Card Payment Network):

• Formally established in 2012
• Supervisory body for electronic card payments
• Integrates payment service providers (PSP) and POS terminals
• Central management and monitoring of card payment security
• Platform for domestic card transaction processing

Operational Characteristics:

• Purely domestic network without international connectivity
• Closed system relying on internal bank clearing
• Real-time transaction processing
• Security and fraud monitoring systems

Recent Developments (2024):

• Mir System Integration: Shetab system linked with Russia's Mir payment system (July 2024)
• Alternative Rails: Establishing corridor connections with sympathetic nations (China, Russia, Turkey)
• Cryptocurrency Exploration: Unofficial use of crypto for international transactions

Limitations Due to Sanctions:

• Cannot settle in US dollars through international channels
• No access to SWIFT messaging (disconnected 2012 for major banks)
• Limited correspondent banking relationships
• Restricted wire transfer capabilities for cross-border payments

Foreign Exchange Regulation

Currency Control under Sanctions:

The CBI manages Iran's foreign exchange through administrative controls and market management:

Exchange Rate Management:

• Central bank sets official intervention rates
• Multiple parallel market rates reflecting scarcity
• Import licensing tied to foreign exchange allocation
• Preference given to essential imports (food, medicine, energy inputs)

Capital Controls:

• Restrictions on cross-border fund transfers
• Limits on personal currency holdings and transfers
• Documentation requirements for foreign exchange access
• Prior approval processes for business transactions

Foreign Currency Rationing:

• Limited foreign exchange for import financing
• Priority allocation to state enterprises and strategic sectors
• Auction-based allocation mechanisms for some uses
• Black market premium reflecting scarcity

Sanctions Impact on FX:

• US dollar sanctions limiting dollar availability
• Secondary sanctions on foreign banks reducing correspondent relationships
• OFAC blocking and freezing of accounts
• Difficulty in accessing foreign exchange for legitimate purposes

Islamic Finance Framework

Central Bank's Role in Islamic Banking Supervision:

The CBI enforces Islamic banking principles across the financial system:

Sharia Compliance Authority:

• Supervision of prohibited transaction types (riba/interest)
• Monitoring of profit-sharing and partnership structures
• Validation of asset-backed financing (murabaha, ijara)
• Zakat (Islamic alms) and charitable fund management oversight

Post-1979 Islamic Republic Integration:

• Banking system conversion to Islamic principles following 1979 Revolution
• Elimination of conventional interest-based banking (1983)
• Integration of Islamic banking with religious authority structures
• Fatwa-based regulatory interpretation of permissible activities

Financing Structures:

• Cost-plus (murabaha) arrangements replacing conventional loans
• Profit-sharing (musharaka) partnerships
• Leasing (ijara) transactions
• Islamic insurance (takaful) structures

Implementation Challenges:

• Substance vs. form issues in banking compliance
• De facto interest arrangements in Islamic structures
• Regulatory consistency and enforcement

Sanctions and International Isolation

CRITICAL SANCTIONS CONTEXT - Comprehensive US Program:

The CBI itself has been designated and sanctioned by the United States:

Primary Sanctions Designations:

Central Bank Designation (2019):

• Designated under Executive Order 13224 (counterterrorism authority)
• Basis: Material support to Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF)
• Basis: Support for designated terrorist organization Lebanese Hezbollah
• Effect: Effective prohibition on US financial institution dealings

Technology Smuggling Sanctions (February 2024):

• Treasury sanctioned CBI network for smuggling US technology to Iran
• Demonstrates continued sanctions evasion attempts
• Includes penalties on involved intermediaries

Cyber Incident (August 2024):

• Central Bank cyberattacked by IRLeaks
• Data breach affecting institutional systems
• Information disclosure of internal communications

Operational Impact of Sanctions:

Banking Isolation:

• Disconnection from SWIFT system
• Inability to access US dollar clearing
• No correspondent banking relationships with major banks
• Limited trade finance capabilities

Foreign Exchange Constraints:

• Dollar shortage despite central bank reserves
• Extreme difficulty in accessing foreign currency
• Reliance on informal channels and barter
• Black market premiums 200-300% above official rates

International Payment Barriers:

• Difficulty in settling international transactions
• Restricted access to essential imports
• Humanitarian goods procurement complications
• Limited capital inflows for investment

Strategic Alternatives:

• Trade with Russia, China, Turkey in local currencies
• Crypto and informal transfer systems
• Barter arrangements with regional partners
• Development of parallel financial infrastructure

AML/CFT Framework

FATF Blacklist Status - HIGH RISK:

The CBI operates under severe AML/CFT deficiency designations:

FATF Blacklist Membership (As of 2026):

• Iran on Financial Action Task Force "High-Risk Jurisdictions" (blacklist) along with North Korea and Myanmar
• Designation: "Strategic Deficiencies" in AML/CFT compliance
• Recent Status: Maintained February 2026

Reasons for FATF Action:

Legislative Gaps:

• Failure to enact Palermo Convention (organized crime) consistent with FATF standards
• Incomplete terrorist financing convention implementation
• Substantive legislative deficiencies not remedied

Terrorist Financing Risk:

• Identified as "high-risk" for terrorist financing
• Connections to IRGC-QF and Hezbollah financing
• Proliferation financing of weapons of mass destruction
• Designated terrorist organization support networks

AML Deficiencies:

• Money laundering control framework gaps
• Beneficial ownership identification weaknesses
• Transaction monitoring and reporting insufficiencies
• International cooperation limitations

Recent Developments (2025):

• Palermo Convention Progress: Iran's Expediency Council approved Palermo Convention (May 2025)
• Path to Delisting: Conditional on further legislative action on terrorist financing measures
• FATF Expectations: Demonstrated substantial implementation before reconsideration

International Countermeasures:

FATF-recommended countermeasures applied by member jurisdictions:

Financial Institution Actions:

• Refusal to establish subsidiaries or branches in Iran
• Prohibition on Iranian financial institution branches in members
• Enhanced due diligence and transaction monitoring
• Possible financial relationship termination
• Wire transfer screening and blocking

Practical Impact:

• Severe correspondent banking isolation
• Transaction delays and blocked payments
• Higher compliance costs and scrutiny
• Limited access to global financial system

CBI-Specific AML/CFT Obligations

Domestic AML/CFT Program:

Despite FATF blacklist status, the CBI maintains domestic AML/CFT frameworks:

Regulatory Authority:

• Supervision of bank AML/CFT compliance
• Reporting standard setting and enforcement
• Suspicious transaction analysis coordination
• Sanctions list implementation

Key Standards:

• Customer due diligence (CDD) requirements
• Beneficial ownership identification
• Transaction monitoring and reporting
• Sanctions screening for designated persons/entities
• Enhanced due diligence for high-risk activities

Challenges:

• Limited international cooperation due to sanctions
• Restricted access to international databases
• Constrained capacity for cross-border investigations
• Informal economy size limiting regulatory reach

Enforcement Actions

Supervisory Authority:

The CBI maintains enforcement mechanisms over banking system:

Tools:

• Administrative penalties and fines
• Operational restrictions
• Management removal orders
• License suspension or revocation
• Corrective action programmes
• Closure of non-compliant entities

Focus Areas:

• AML/CFT compliance violations
• Sanctions evasion prevention
• Sharia compliance breaches
• Prudential standard violations
• Foreign exchange regulation violations

Constraints:

• Limited international enforcement coordination
• Restricted cross-border asset recovery
• Sanctions on enforcement operations (US restrictions)

International Relations

Extremely Limited Due to Sanctions:

IMF Engagement:

• No IMF programs or active engagement
• Article IV consultations not conducted
• Technical assistance severely limited
• Limited communication channels

BIS Participation:

• Non-participant in formal BIS structures
• Minimal central bank cooperation
• Some informal contact with sympathetic banks

Regional Cooperation:

• Limited engagement within ECO (Economic Cooperation Organization)
• Trade arrangements with China, Russia, Turkey
• Informal central bank contacts with sanctions-resistant nations

Multilateral Institutions:

• Effectively excluded from World Bank programs
• Limited or no ADB participation
• Restricted SWIFT access limiting payments
• Sanctions-driven isolation

Contacts

Central Bank of Iran Headquarters:

• Address: Ferdowsi Ave., Tehran, Iran
• Website: www.cbi.ir
• Governor: Mohammad-Reza Farzin
• Note: International contact severely limited by sanctions; direct US contact prohibited

International Communication Limitations:

• Restricted ability to conduct international transactions
• Limited correspondent banking relationships
• Sanctions-driven communication barriers
• Informal channels for essential international contacts

Sources

Regulatory Powers

This entity exercises the following regulatory powers as the central monetary authority:

Regulatory Role and Function

Legal Foundation

Established by primary legislation (Central Bank Act or equivalent enabling statute) enacted by the national legislature. Operates under a statutory mandate that defines its objectives, powers, governance structure, and relationship with government. The legal framework typically provides for operational independence in monetary policy while maintaining accountability to the legislature. The entity was established in 2003.

Licensing and Authorization Relevance

The Central Bank of the Islamic Republic of Iran (CBI) is a key licensing authority in Iran's financial system:

The licensing process typically involves assessment of capital adequacy, fitness and propriety of management, business plan viability, AML/CFT compliance frameworks, and IT systems readiness.

Payments and Money Movement Relevance

The Central Bank of the Islamic Republic of Iran (CBI) plays a central role in Iran's payment ecosystem:

Payment Systems Governed or Overseen

The CBI operates and/or oversees the national payment and settlement infrastructure of Iran. Specific systems include:

[Further detail on specific system names requires verification from official sources]

Relationship to Other Regulators

The Central Bank of the Islamic Republic of Iran (CBI) operates within Iran's broader financial regulatory architecture and maintains relationships with:

Geography and Jurisdiction Notes

Important Departments and Divisions

Key Public Resources

Notes on Naming and Language