Iran’s money printing reached a record by Guaripete
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As the Iranian government declared economic success, a central bank report showed the money supply had increased 45% this year, pointing to higher inflation.
President Ebrahim Raisi gave a speech claiming to have controlled inflation and reduced money printing, promising that the 50% inflation rate would drop to 30% by March 2024.
However, a report from the Central Bank of Iran (CBI) cited by Tehran media indicated that in April 2023, money supply showed a 45% year-on-year growth. Money in circulation reached a staggering 88.7 trillion rials, or about $177.4 billion at an exchange rate of 500,000 rials to the dollar.
This is the highest level of currency in circulation in Iran’s history, fueled by government borrowing from the CBI, which inevitably led to money printing without any foreign currency or gold collateral. The Islamic Republic has always printed surplus currency throughout its 44-year history, but at varying rates. When oil export revenues are high enough to support government spending, less money is printed. However, when oil prices fall or Iran is sanctioned over its oil exports, printing increases and the value of the rial suffers. Sometimes the rial remains relatively stable for a few years, such as the second half of the 2000s, when exports and oil prices were high.
In 1978, before the revolution, a US dollar was worth 70 rials, compared to about 4,000 at the beginning of 2018 and 500,000 today. The United States withdrew from the JCPOA nuclear deal in May 2018 and imposed restrictions on Iran’s oil exports and international banking. This quickly led to higher inflation and a rapid withdrawal of the rial. This process only accelerated last year, with the rial rising from 260,000 to 500,000 per dollar.
Other factors preventing oil wealth from boosting an economy that has not grown since 2012 are an inefficient economic system and a lack of foreign investment.
Estimates by Iranian economists indicate that 80% of the economy is controlled by the government, which controls banks, automakers and the energy sector, among others. Political appointment of leaders, nepotism, government interference and poor planning have led to ineffectiveness.
These factors, along with international and US sanctions resulting from Iran’s confrontational foreign policy, have prevented any significant volume of foreign investment. This leaves the economy largely dependent on oil export revenues and more vulnerable to sanctions or low energy prices. The lack of investment is even hurting production in the oil and natural gas sector, with investment levels less than one-tenth that of Saudi Arabia and very little technological input. Saudi energy company Aramco has invested hundreds of billions of dollars over the past two decades, with annual investments recently reaching a staggering $40 to $50 billion. However, Iran’s oil exports increased and reached almost pre-sanctions levels in August, but the additional shipments have so far not translated into improved finances, lower inflation and a strong rial exchange rate. than.
According to a July article on the Aftab News website, linked to Iranian reformers, the government borrowed about $12 billion from four major semi-private banks in the three months through June 21. To ensure available capital, he issued instructions to these banks to reduce lending. to the private sector, causing 500,000 jobs to be lost amid an already serious economic crisis.
These banks, which are facing cash flow problems, are looking to the central bank to replenish their reserves. So, whether the government borrows directly from BCI or from other banks, the money supply still increases.
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#Iran #moneyprinting #inflationrate #moneysupply #rialexchangerate #centralbank #governmentborrowing #economiccrisis #foreigninvestment #internationalsanctions
