Abdolnaser Hemati, the Iranian regime’s Central Bank President, acknowledged that rising prices of goods and the inflation rate is due to the regime’s wrong economic policies.
In his personal Instagram account, while pointing out that increasing prices is not just due to the monetary base and liquidity growth, Hemati wrote: “Purchasing part of the currency’s resources of the National Development Fund to cover the budget deficit by the Central Bank (as mandated in this year’s budget) in the case of sanctions is to cover the budget deficit from the monetary base. In the short term, this would be like borrowing from the Central Bank.”
This new way of borrowing from the Central Bank by the regime’s President Hassan Rouhani’s government is due to its total bankruptcy. Rouhani with the approval of Ali Khamenei, the regime’s supreme leader, withdrew a significant amount of currency from the National Development Fund to remit it to the Central Bank to somehow cover its staggering budget deficit. This led to 49.5% increase of the country’s monetary base and rising inflation and ultimately led to an increase in the price of goods and services.
Governments in the Iranian regime, due to its institutionalized corruption and wasting billions of dollars on terrorism, have been always grappling with budget deficit. Yet, since Akbar Hashemi Rafsanjani was the regime’s president, different governments used borrowing from the Central Bank as the only way to cover their budget deficit.
Now, under international sanctions for its illicit activities and the rising value of dollar in Iran, the regime is unable to use this method to cover its budget deficit.
One of the regime’s state-run news agencies, Banker, described this situation as the “Central Bank Empty Gun.” “The growth of the increase in the foreign reserves of the Central Bank (due to the currencies of the National Development Fund) had a greater share than the growth of the monetary base itself. In fact, the high increase in the monetary base is due to the use of Central Bank resources to cover the budget deficit, this time referred to as the National Development Fund. The difference is that at present, the Central Bank does not have access to foreign currencies and cannot receive foreign exchange resources to control market fluctuations in exchange for the Rial provided to the government. This shows why the Central Bank was able to control inflation in the 2000s but does not have the tools now. The Central Bank has an empty weapon but seeks to stabilize currency fluctuations.”
In this regard, Majid Reza Hariri, head of the Iran-China Chamber of Commerce, while referring to the regime’s difficulties in having banking transaction with China and Russia said: “At present, we have practically no banking transactions with Russia and China, and if someone with an Iranian passport applies for banking services in these countries, it will be refused.”
In 2018, even before the United States withdrew from the Iran 2015 nuclear deal with world powers and reimpose sanctions, the Iranian regime tried to cover its budget deficit by influencing the selling of dollar at the exchange rate of 20,000 in the black market through exchange market and made a huge profit. Yet, since then Iran’s currency has been fluctuating.
The freefall of Iran’s currency is an indicator of the government’s absolute economic bankruptcy. The current value of Iran’s currency, along with other signs such as inflation and liquidity rate, adds more pressure on the Iranian people. According to state-run media, the terrible amount of liquidity has reached 2651 trillion tomans. This huge amount of liquidity will result in a rising inflation rate and higher prices. The regime’s budget deficit and its economic failure have increased amid the COVID-19 outbreak. But most importantly, the regime’s institutionalized corruption and misusing of funds to continue its illicit activities leaves no solution for this crisis. As Hussain Raghfar, one of the regime’s economists, said: “One of the most important decisions to make is to raise the exchange rate. Certainly, the consequences of this decision will be on all people, society, production, and the future of the economy.”
In a nutshell, the economic pressure, along with the regime’s oppression and mismanagement of the COVID-19 with its rising death toll, have turned the Iranian society into a powder keg ready to be exploded.
In this regard, the state-run Arman daily wrote on August 2: “The current situation of foreign exchange market that has witnessed in the last two weeks, the dollar, that was sold at the exchange rate of 26,000 Tomans, has reached 20,000 Tomans with a fall of 6,000 Tomans and has returned to nearly 24,000 Tomans, and could result in anything. These behaviors of the Central Bank are very risky. Because this situation can provide a platform for the occurrence of some social issues, developments, and uprisings in society. In other words, the current economic situation of the country has reached a critical point … We in the country are facing the challenge of unemployment, inflation, recession, and similar issues.”
Source » ncri