Central Bank of Iran data show relatively higher growth in assets that can be readily cashed compared to less liquid assets.
M1 stood at 12,798.7 trillion rials ($36.25 billion), up 56.3% by the end of seventh calendar month to October 22. It jumped 29.7% in seven months since the beginning of fiscal year in late March.
Quasi-money, or M2, which reflects less liquid assets grew at a slower pace to 43,971 trillion rials ($124.5 billion) -- up 29% y/y. It climbed 14.3% in seven months.
M1 and M2 are the two components broad money. The former refers to the most liquid assets that can be easily turned into cash. Cash is the highest liquidity asset because it can be traded easily and quickly without any effect on its market value.
M1 includes currency, demand deposits and other liquid deposits like savings. It is the most liquid portion of money supply because it contains currency and assets that either are or can be quickly converted into cash.
M2 or near-money, refers to less liquid assets that can be quickly exchanged for cash. Examples are bank certificates of deposit, treasury bills and long-term deposits.
According to the CBI, the role of M1 in money supply was near 22.5%, up from 20.4% in March. Likewise, M2 accounted for 77.5% of the total money supply, declining 2.1 percentage points on March.
M1 is seen as a key inflation-generating component of money supply and its increase means rise in inflation expectations. It also implies that savers are less inclined to put money for long in the bank.
Economists and financial observers link the unprecedented growth in M1 to the cash subsidy deposited into bank accounts of selected (needy) recipients after the government rewrote costly subsidy policies of the recent past.
In May the Raisi administration put an end to the controversial and apparently unaffordable forex subsidies it gave to importers of essential goods and instead started paying cash to eligible recipients, namely the underprivileged hit by the high and rising cost-of-living.
According to the central bank, total value of banknotes and coins was 956.2 trillion rials ($2.7b) by October 22 – 30.1% higher on the same period last year. It was up 10.6% over seven months since March.
Key Monetary Data
The CBI said broad money and the monetary base shot up again in the seventh calendar month to October 22. Broad money stood at 56,769.7 trillion rials ($160.8b) in the said period, up 17.5% in seven months but 4.1 percentage points lower than the corresponding period last year when it was 21.6%.
On an annualized basis, broad money jumped 34.3% during the seven months to October 22, which was lower on the annual growth percentage in the first seven months last year at 42.8%.
Broad money growth could be lower had it not been for the lengthy accounting operations resulting from a megamerger of five banks with the state-owned Bank Sepah in December 2020. Accordingly, transfer of the general ledger of Mehr Eqtesad Bank to Bank Sepah accounted for 2.3% of the broad money growth.
Likewise, monetary base was 7,129.3 trillion rials ($20.19 billion) -- up 18% in seven months since the beginning of fiscal year in March, but rose 34.5% in 12 months, which was down 1.9 percentage points from annualized growth of 36.4% in the same period last year.
Money multiplier stood at 7.963, down 0.5% in seven months and 0.2% on the similar period last year. This indicates that with each rial created in the banking system, money supply increased by 7.963 rials.
