Iran’s Money Supply Soars Along With Inflation

The latest liquidity figures released on June 15 by the Central Bank of Iran show that the volume of money in circulation in the country increased by 31% from March 2019 to March 2020.

This is unprecedented growth in the money supply of a country struggling with high inflation and a declining currency, which has lost most of its currency export earnings.

In the previous annual cycle in 2018-2019, liquidity increased by 23%. Therefore, the combined increase in money supply over the past two years has been over 55%.

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

But Iran’s economy over the past two years has contracted, and strong money supply growth means the government is printing banknotes that the economy does not need. This could be a classic case of the government printing money to meet its financial obligations and budget shortfalls.

The rapidly growing money supply easily leads to a higher rate of inflation, which in the case of Iran has reached an annual rate of 40%. This in turn decreases the value of the currency. The Iranian rial has almost quintupled since the start of 2018.

Money in circulation in March reached 24 trillion rials, or about $700 billion, based on the 2017 exchange rate before the devaluation.

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

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