TEHRAN, Sept. 5 (Mehr News Agency) - President Mahmud Ahmadinejad has called for the establishment of an interest-free banking system based on Islamic principles.
"Interest-free banking is a very advanced and unique system which is based on Islamic principles," the president said on Wednesday at a gathering organized to introduce Tahmasb Mazaheri as the new Central Bank governor.
Structural reforms should be made to establish this system, he added.
Today there is an opportunity to revise the banking laws, he noted.
"No economic activity is possible without assistance from banks," he said.
"If there is any problem in the banking system, it will negatively affect all economic sectors and the people's lives."
However, if the banking system adopts a proper monetary policy, all other sectors of the economy will grow, he observed.
Banks should not be involved in profit-making activities
The president criticized the banks for becoming involved in the housing sector through construction and purchases of homes and said that the banks should not become involved in profit-making investments.
Ahmadinejad rejected the theory that high liquidity increases inflation, saying directing liquidity toward the production sector would certainly put a brake on inflation, and thus the economy would achieve a 9 to 10 percent growth rate.
During Iranian calendar year 1385 (March 2006-March 2007), the country's economic growth rate stood at 7 percent, the president asserted.
About 70 percent of bank loans currently go to certain companies and persons, which is a policy that needs to be changed, Ahmadinejad stated.
Yet now, nearly two decades since the end of the war, citizens rightfully expect inflation to be brought under control. However, inflation has been rising over the past two years.
In an interview with reporters on Tuesday, Ebrahim Sheibani, who officially handed over the governorship of the Central Bank of Iran (CBI) to former economy minister Tahmasb Mazaheri yesterday (Sept. 5), said, "Inflation is the enemy of everything good."
To control inflation, its roots must be identified first, Sheibani added.
Well, the fact that too much money has been injected into the economy, despite warnings by economists and former economic officials, is the main cause of the rise in inflation, and Mr. Sheibani and other economic experts are definitely aware of this.
And it is obvious that the expansionary monetary policy of the past two years has not brought a high growth rate or decreased unemployment.
In light of all this, it is clear that reducing interest rates will only increase inflation.
To steer the national economy in the right direction, the new central banker should stick firmly to proven monetary and economic policies and reject all suggestions by non-experts.
... Payvand News - 9/6/07 ... --