Central Bank of Iran Revisits Supply of Money
EghtesadOnline: The Central Bank of Iran said in a report that broad money supply reached 24,721.5 trillion rials ($137 billion) when the fiscal year ended in the third week of March.
Broad money grew by 5,893.5 trillion rials ($32.7 billion) during the year, indicating 31.3% hike and one of the highest in the past five decades.
CBI’s report includes the entire money stock circulating in the economy plus quasi money.
It said the share of money in the financial system was 4,273 trillion rials ($23.7 billion) by March 19, indicating 49.8% annual growth.
Likewise, the value of quasi-money amounted to 20,448.5 trillion rials ($113.6 billion) to post 28% rise year-on-year.
Quasi money, also called near-money, is highly liquid assets other than cash that can be quickly exchanged for cash. Examples are bank certificates of deposit and treasury bills.
The total value of banknotes and coins in circulation was 611.4 trillion rials ($3.4 billion) – up 11.7%.
Outlining reasons behind the monumental growth in money supply in recent months, the CBI in a press release earlier I the month blamed borrowing from the National Development Fund of Iran, the country’s sovereign wealth fund, and the new US sanctions on oil exports and other key economic sectors.
NDFI, which is independent of the government, technically holds a portion of oil and gas revenue for future generations when government earnings are high.
Successive governments have approached the fund for financial aid when their own revenue was not adequate to cope with multiple crises.
The Rouhani administration took out loans from the fund after the deadly floods in March 2019 and the ongoing coronavirus pandemic that has hammered the economy and stifled growth in all sectors as is the case in countries around the world.
NDFI resources are largely from oil and gas exports kept in an account with the CBI. When the government borrows from the fund, the central bank gives the same amount in rials to the government. This practice the CBI says is one of the main reasons behind the unprecedented liquidity growth.
Reviewing the pattern of unhelpful money supply in the past five decades, the CBI said liquidity was 16.9% on average in the 1960s, 30% in the 1970s, 18.4% in 1980s and 26.7% in the 2000s (up until March 2020).
The highest annual liquidity growth was registered for fiscal 1974-75-- at 57% followed by 2006-07 at 39% and 38% in 1995-96.
As per the CBI report, total assets in the banking system, including foreign assets plus government and non-government debt to lenders, reached 54,234.5 trillion rials ($301 billion) by the end of last year, up 24.6% compared to the year before.
Banks had more than 11,686 trillion rials ($65 billion) in foreign assets -- up 27.4% annually.
The government sector, including government and state-owned companies, owed 4,006.7 trillion rials ($22 billion) to banks by March 19 showing 20.5% annual growth.
Regarding CBI assets, data shows 9.1% yearly increase during the mentioned period with 8,024.4 trillion ($44.5 billion) in assets. CBI’s foreign assets grew 17.6% accounting for 5,470.2 trillion rials ($30 billion) of its total assets.
By the end of last year, commercial banks had 8,013 trillion rials ($44.5 billion) in assets, which was 26.8% higher than the year before. Foreign assets of commercial banks stood at 769.9 trillion rials, showing 34.3% annual increase.
Likewise, the value of assets held by specialized banks reached at 8,233.5 trillion rials ($45.7 billion), indicating a 32.2 % growth year-on-year.
Total value of foreign assets held by specialized banks reached 1,839.8 trillion rials by March 19, jumping 65.2%.
In addition, assets held with non-government banks and credit institutions amounted to 29,962.7 trillion rials ($166 billion), showing 26.5% increase annually.