Financial Independence in the Central Bank of Iran - A Survey

The Central Bank Independence has been de facto construed as a prerequisite stipulation for felicitous implementation of monetary policies to accomplish the long run targets of price stability and economic growth in toto. It goes without saying that in methodology, the term "independence", could be expounded in various features of Institutional, Functional, Personal, and Financial independence, Sine qua non. However, we have tried to focus on financial independence of the Central Bank of Iran, per se. Hence, in this paper, an attempt is made to investigate the impact of government budget deficit on the size and structure of balance sheet components of the Central Bank of Iran, viz-a-viz compiling and extracting the pertinent data from the miscellaneous sources of government budget and Central Bank's balance sheet Ipso facto. The results prima facie indicate that the value of the Financial Independence Index in the Central Bank of Iran is 0.53 of the unit which is significantly lower than the one, and will affirm weak underpinning of financial independence in the Central Bank of Iran pro rata. Besides, we have observed that persistent budget deficits of government which are financed from the Central Bank resources and also the obligatory sales of foreign exchange derived from the oil proceeds to the Central Bank to finance the government expenditures are two main attributes of budget mechanism in Iran, which will undermine the efficacy of the Central Bank to manage its balance sheet, and will limit its financial independence Sui generis. Thus, we propound that, to acquire the target of price stability, the financial independence of the Central Bank is de jure contemplated as an exigency, Ipso facto.