The Limited Role of the Imperial Bank of Persia

Research in the archives of The Imperial Bank of Persia (IBP) shows that it saw itself as a facilitator of trade payments, not as a lending or deposit institution – in other words, entirely differently from modern banks, and with a limited role for economic development. Chartered in 1889, the only substantial borrower was the Iranian government, which used a wide array of mechanisms to extract cash advances from the IBP. As part of its extraordinarily cautious practices, the IBP kept at each branch more metallic cash—that is, silver and gold—than the paper notes in circulation. One indication that the IBP had good reason to hold such large reserves in coin was the value of notes fluctuated sometime more than 50 percent from year to year. Because of the very conservative reserve in coin, note issuance may not have been directly profitable, but it put the IBP in a good position to argue that it should be allowed to import silver for the mint to turn into coin, an operation that was quite profitable. The IBP faced difficulties in getting its paper currency accepted as fully equivalent to silver. Runs on the IBP were at times quite successful at preventing regular conversion of notes into silver. At the same time, the advantages of paper currency can be seen from the competing paper currencies issued by Iranian merchants, to which the IBP often objected to the government. The paper currencies issued by merchants were in many ways a further development of the system of bijaks or barats, which were credit certificates issued by sarrafs, or money-lenders (as well as by the large merchants, especially in cities without specialized sarrafs). The government frequently made payments by means of barats—the term bijak apparently being seldom used for government credit certificates—which were little more than forced loans. In short, Iranians had many reasons to regard with suspicion paper promises to pay in coin, so it is hardly surprising that the IBP faced reluctance to accept at face value its claim that its paper could be readily converted into hard coin. And it was hardly surprising that sarrafs, angered that the IBP was taking over from them the business of lending to the government, would periodically organize runs on the IBP, often aided and abetted by Russian interests.