Iranian Economic Review
Volume:8 Issue: 8, Spring 2003

Since the advent of Islamic Revolution in 1979 and due to foreign exchange controls by the Central Bank of Iran, the black market value of the Iranian rial had declined substantially as compared to its official value. In several articles published in professional journals I have first identified factors which has caused the rial to decline. I have then investigated the impact on Iranian economy of the depreciation of the rial. This paper collects and reviews those articles and provides a comprehensive review of issues involved with some policy implications

One of the measures taken by the 1979 Revolutionary Government of Iran was to denounce the mixed public-private ownership of the banking system of the pre-revolutionary era and implement a full scale banking nationalization and merging scheme. Since then the banking system has been operating under close supervision and scrutiny of the government - exercising its power to impose a variety of restrictions and interferences, including: restrictions on branch expansion, interest rate repression and discretionary credit allocation. This paper is intended to evaluate the impact of the government restrictive and regulatory policies on financial savings, investment, efficiency and economic growth in Iran. The analysis is carried in terms of a model similar to the model implemented by Ketkar (1993). This model is essentially derived from combining McKinnon-Shaw hypothesis with Harrod-Domar growth model via the dynamic adjustment mechanism formulated by Molho. The findings indicate that branch restrictions and also credit ceilings had a negative relationship to economic growth, while the increase in credit to priority sectors (agriculture, industry and construction) had a positive relationship. The effect of interest rate reduction on economic growth in Iran was, however, inconclusive.

The present paper is an attempt to: 1- Demonstrate how money is created (by the nature of the system), and to estimate the inflation resulting from monetary factors in both usurious and non-usurious systems. Operational aspects of Islamic and non-Islamic banking systems are compared. 2- Introduce a corrective term to be added to the multiplier of the supply of money, in order to prevent the under-estimation of the multiplier into the usurious system.

The analyses by the first ranked economists show that the economical growth of the countries that import oil or non-oil developing countries (NODCs) depends on the economical growth of the industrial countries. “Goldstein” & “Khan” by means of a long & complete verification show the dependence of the economical growth and “Callier” also claims this fact that the economical growth of the countries that import oil relates on the industrial countries and also depends on the real interest rate. The author of this paper generalizes the above idea in these facts that: This verification also includes the countries that export oil or oil-exporting developing countries (OXDCs) and by the way among all the countries that are talked about, the Islamic republic of Iran is chosen and the influence of these parameters on the economical growth of this country is analyzed. In contrast with “callier’s” conclusions first of all this paper shows that nominal interest rate has influenced by the growth of the NODCs countries considerably. Secondly the economical growth of the industrial countries and world interest rate do not have any influence on the economical growth of the countries that are try to improve their oil export. Additionally this analyze mentions that the economical growth of Iran before & after of Islamic revolution has not influenced by the economical growth of the industrial countries nor the world interest rate and the negative and also the meaningful dummy parameter tell that the economical structure after revolution is not good and if there isn’t any plan to change the structure & conditions of the economy the real economical growth encounters the reduction rate of 5٪.

The rule of ideologies which ban interest or usury which is earned through lending money has led to developing economic systems that differ from conventional economic systems in which, interest has been entered. The presence of systems not relying on interest, in turn, has questioned the necessary motives in capital establishments through savings. In this paper, while defining the concepts of money, capital and attribution of interest to money and profit to capital, a comparative study has been carried out to study the characteristics of capital establishment in the usury and nonusury based economic systems. It has been shown how these two systems differ from each other in terms of production costs, amount of profit, risk acceptance, increased supply of goods and services and general level of prices. At the same time, the important issue of supplying financial provisions for non-investment projects and related indexes have been studied accordingly.

The purpose of this paper is to explain the causes of long-run movements in the parallel market premium in the pre-and-post revolution Iranian economy. The paper suggests that the premium is affected by both real and monetary shocks. Non-spurious co-integration results indicate that negative oil revenue shocks and a revolution-induced exogenous capital outflow caused the parallel market parallel market premium to increase rapidly after the revolution. In addition, it has been shown that the excessive inflation tax created by post-revolution government decreased continuously the return to holding domestic currency and the premium increased as a result of continuous adjustments in private portfolio balances. The paper concludes that the premium cannot be controlled unless government controls money supply and reduces oil dependency of the economy.