January 2, 2012

US Signs Iran Central Bank Sanctions Into Law

By Central Bank News

The US President, Barack Obama, has signed into law new sanctions on Iran's central bank that will punish foreign financial institutions that do business with Iran's central bank, The Central Bank of the Islamic Republic of Iran.  The new sanctions will begin taking effect in 60 days, but the tougher sanctions will come in around 6 months from now.  The sanctions will essentially shut off access of a non-compliant institution to the US financial markets and banking system.  

The sanctions target both private and government-controlled financial institutions (including central banks).  The President is able to grant 120-day waivers if it is in the national security interest of the US, or for the sake of energy market stability.  The President can also exempt institutions in a country that has significantly reduced its dealings with Iran.

The risks of the implementation of the new laws include disruption to the energy markets, including a possible spike in oil prices, as well as potential geopolitical risks e.g. Iran has indicated it may take the signing into law of the sanctions against it as an act of war.  The measures also have the potential to damage relations with other countries, which may serve to conflict with the original intention of isolating Iran.  However US officials havenoted: "Our intent is to implement this law in a timed and phased approach so that we avoid repercussions to the oil market and ensure that this damages Iran and not the rest of the world,".  In addition the US president signaled reservations on several measures in the "National Defense Authorization Act for Fiscal Year 2012."

On Iran's economic stats, according to IMF figures, Iran's economy grew 3 percent in 2010, with inflation around 10 percent.  Iran's central bank announced a series of interest rate measures to loosen monetary policy in early 2011.  Iran's currency, the Iranian Rial (IRR), has weakened about 8% during 2011, and last traded around 11,160.  Iran has significant oil reserves and according to the US Energy Information Administration "In 2010, Iran was the world's fourth largest producer and third largest consumer of natural gas."

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