Iran’s money supply skyrockets parallel to inflation

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Central Bank of Iran

Central Bank of Iran

Latest liquidity figures released June 15 by the Central Bank of Iran show the volume of money in circulation in the country grew by 31 percent from March 2019 to March 2020.

This is an unprecedented growth in the money supply of a country gripped by high inflation and a falling currency, which has lost most of its foreign currency export revenues.

In the previous annual cycle in 2018-2019 liquidity had risen by 23 percent. Therefore, the combined increase in money supply in the last two years has been more than 55 percent.

Annual increases in money supply in all growing economies is a natural phenomenon, usually resulting from the growth in economies. The larger the economy becomes the more money is needed to keep the system working optimally.

But Iran’s economy in the last two years has been shrinking and a large growth in the money supply means the government is printing banknotes the economy does not need. This could be a classic case of the government printing money to address its financial obligations and budgetary shortfalls.

The fast-growing money supply easily leads to a higher rate of inflation, which in Iran’s case has reached 40 percent annual rate. This in turn lowers the value of the currency. The Iranian rial has fallen almost five-fold since the beginning of 2018.

The money in circulation in March reached 24,000 trillion rials or around $700 billion, based on the 2017 pre-devaluation exchange rate.

The central bank announced that the huge growth in the money supply is the result of American sanctions on Iran’s oil exports.

Source » radiofarda

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