This meeting was held with the pivotal aim of evaluating and analyzing as much as possible the instrument of Repo (Repurchase Agreement) in accordance with Sharia, which has recently been approved by the Sharia council of the Central Bank. In this meeting, Seyed Abbas Mousaviyan (a member of the Sharia council of the Central Bank) as a lecturer and Dr. Ali Salehabadi (Chairman of the Iranian Association of Islamic Finance and CEO of the Export Development Bank), Dr. Amir Hamouni (CEO of Fara Bourse Co.), ‌ Mahmoud Naderi (Deputy Director of Central Bank’s Economic policies and Investigation Department) and Dr. Mohammad Reza Yousefi Sheikhrobat (a faculty member of (Mofid University) were present as members of the roundtable.

Seyed Abbas Mousaviyan

In the past, open market operations were limited to the purchase and sale of securities by the central bank to control liquidity, but in the last two decades, with the development of knowledge of monetary economics and central banking, open market operations have also changed. In simple terms, open market operation is an activity in which the central bank tries to implement its policy goals in the money market (interbank market) by buying and selling a certain group of securities. In fact, the nature of open market operations is to manage reserves in the money market through the purchase and sale of securities.

The most important securities used in this instrument are: government securities, central bank securities, government bonds, foreign treasury bonds and repurchase agreements (repo). Repurchase agreements (repo) are a widely used instrument. The study of interbank markets shows that repurchase agreements (repos) in addition to being a good instrument for central bank open market operations to implement monetary policy, also play an important role in managing the short-term liquidity of money and capital market practitioners.

The most important advantage of a repurchase agreement as a monetary policy instrument is that it can be planned in terms of liquidity, duration and rates of return. Of course, it should be noted that the repurchase agreement used in Western countries has various problems in terms of Sharia. For example, some Western repo models are based on borrowing and pledging securities that are practically Riba (usury) based. Since in this case the borrowing is based on interest and excess, the loan agreement will be usurious and will not be enforceable in the Islamic financial markets.

Some other western repo models are based on sales contracts, but they have two major problems in terms of Sharia. In a Western repurchase agreement, the asset is often based on government bonds or government treasury bills, which are based on interest-bearing loans and are not usable in Islamic banking.

Mahmoud Naderi

One of the central bank's concerns in recent years has been the issue of the repurchase agreement. In fact, open market operations without proper instruments, such as a repurchase agreement, face countless frictions. Above all, it should be noted that sometimes some words lead to misunderstanding of the subject. One of these words is liquidity, in other words, the term liquidity in the Iranian economy is fundamentally different from the word liquidity in the field of monetary policy. In this regard, it is necessary to remind that in the banking system, two types of money are conceivable.

The definition of money can be considered from two dimensions, on the one hand the person in charge of the manufacturer and the signatory, who is actually the issuer of this debt instrument, and on the other hand the person who holds the instrument as an asset and the instrument is considered cash.

Amir Hamouni

The implementation of the Islamic repurchase agreement (repo) requires the cooperation of the money and capital markets. It should be noted that the implementation of this instrument can bring countless benefits to the country's financial market. At present, Iran Fara Bourse has modeled repo transactions in order to create an interest rate corridor by applying innovative changes to the Black-Scholes formula. According to this new method, an optimal strategy for maintaining the interest rate corridor is calculated based on the Islamic repurchase agreement. In this method, the yield-to-maturity curve around the target rates of a corridor is determined and the interest rate balance is maintained. This corridor is also maintained by using instruments such as trading options and repos.

Mohammad Reza Yousefi Sheikhrobat

Currently, this instrument is one of the instruments needed to manage liquidity in the country. In other words, the repurchase agreement has the potential to be used to expand corporate financing instruments and deepen the capital market. In this regard, focusing on the three terms of the Islamic redemption contract can prevent possible Sharia problems. You must also be careful when operating this instrument so as not to lead to phenomena such as the formalization of contracts.

Ali Salehabadi

Repo in accordance with Sharia can be facilitator in both the money market and the interbank market. In other words, this instrument can be used in the money market environment by the central bank for monetary policy through open market operations. It should also be noted that Islamic repo aims to provide short-term liquidity required by the interbank market.