Recent Central Bank of Iran data show increase in money (M1) and a proportional decline in quasi money, or M2.
M1 was in the region of 11,268.4 trillion rials ($36.3 billion), up 55.2% at the end of first quarter of fiscal 2022-23 to June 21, and the highest annual growth since Feb. 2021.
As a component of broad money, M1 is referred to the most liquid assets that can be easily turned into cash.
M1 increased by 11.6% on a monthly basis and was 14.2% higher in the course of three months since the beginning of the calendar year in March.
On the flip side, M2 was 39,781.2 trillion rials ($128.3b) increasing 33.5% annually. It rose 3.4% in Q1, suggesting slower growth compared with M1.
M1 is composed of currency, demand deposits, other liquid deposits—which includes savings. It is the most liquid portions of money supply because it contains currency and assets that either are or can be quickly converted to cash.
M2 or near-money, refers to less liquid assets that can be quickly exchanged for cash. Examples are bank certificates of deposit and treasury bills.
According to the CBI, the contribution of M1 to money supply stood at 22.1%, up 20.4% in March. Likewise, M2 accounted for 77.9% of the total money supply, declining 1.7 percentage points on March.
Data compiled by the Persian-language economic newspaper Donya-e-Eqtesad show that the contribution of M1 to total money supply hit a decade high in June.
M1 is seen as a key inflation-generating component of money supply and its increase means rise in inflation expectations. It also means that people are less inclined to put money in the bank as long-term deposits.
The newspaper said the unprecedented growth in M1 can be linked to the cash subsidy deposited into the bank accounts of selected recipient after the government launched subsidy reforms.
In May the Raisi administration put an end to costly and controversial forex subsidies given to importers of essential goods and started paying cash to eligible recipients, namely the underprivileged hit by high cost-of-living.
The total value of banknotes and coins circulating among the people was 860.7 trillion rials ($2.7b) by June.21, up 20.4% on the same period last year. It was down by 0.4% over three months since the beginning of the fiscal year.
Broad money, the CBI said, stood at 51,049.6 trillion rials ($164.6b) in the said period, indicating 5.6% growth in three months, which was 1 percentage less on Q1 growth last year.
On annualized basis, broad money increased 37.8% as of June 21, which was 1.6 percentage points lower than the growth last year.
