Evaluation of Monetary Policy and Instruments in Central Bank of Iran

Nowadays, Central Banks due to economics transformation and new technology revised their activities accordingly. New targets have been defined and with respects to new ideas about small government, market mechanism promoted instead of central planning and government intervention policies. Central Banks used indirect instruments as their favorite instrument. Also, in term of economic policy, they gave top priority to economic stability and inflation controls rather than unemployment before the recent economic crisis.In Iran, after 50 years of establishing Central Bank and passing two important laws on money and banking in 1972 and 1983, there is a need to revise comprehensively the targets, instruments and structure of central banking. Islamic banking is the rule of the law in banking system in Iran since 1983 and after 25 years of practice, it is necessary to evaluate and develop banking activities according to the modern banking and new development.In this paper, we investigate the economic transformation and financial markets development and the role of central banking in terms of monetary policy and new instruments to deal with economic problems in Iran. Also, we proposed some changes in structure, instruments and targets of Central Bank of Iran to cope with banking and financial markets problems.