from Pressure Points and Middle East Program

Iran’s Central Bank: a Lesson

January 3, 2012

Blog Post
Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

In 2011 Congress forced a reluctant Obama Administration into tougher sanctions against Iran than it desired. One of the toughest required U.S. sanctions against Iran’s Central Bank.

This is an old story, for the Bush Administration also declined to take that tough step. Largely at the insistence of then-Treasury Secretary Hank Paulson, it was agreed that sanctioning a central bank was going too far and could endanger the U.S. or European economy. Paulson was wrong, the Bush Administration was wrong, and the Obama Administration was wrong. Now we know. The sanctions are in place and here is what the Washington Post reports:

Iran’s ailing currency took a steep slide Monday, losing 12 percent against foreign currencies after President Obama on Saturday signed a bill that places the Islamic republic’s central bank under unilateral sanctions....the slide of the rial is a huge blow to Iran’s leaders, who have been claiming that the sanctions aren’t hurting the country. The currency drop feeds increasing worries that the government is running out of funds. The Central Bank of Iran had said Sunday that the United States had become the laughingstock of the world after Obama signed the latest round of sanctions aimed at the institution, Iran’s key axis for oil transactions. But Monday afternoon, the bank held an emergency meeting over the sliding rial...

There are some lessons here. One is that whenever the Iranian regime defiantly says it isn’t afraid of something and that thing will backfire--whether it be moving more U.S. aircraft carriers to the Gulf or sanctions against the central bank--we ought to see quickly through their propaganda and go ahead with it. Indeed the more defiantly the ayatollahs say they are not afraid, the more afraid they most likely are. Another lesson is that tough sanctions can indeed damage the Iranian economy and do so very quickly. A third is that predictions about damage to our economy from making such moves should be reviewed carefully before they are believed. Today we see the immediate impact of central bank sanctions on Iran’s financial and economic situation, and of course none on ours. It is a pity that this step was not taken four years ago.