New data show net foreign assets owned by the Central Bank of Iran contributed more to the monetary base expansion the final month of the last fiscal year ending March 20.
The role of bank debts in expanding the monetary base has declined proportionally, the CBI said in a report.
The monetary base reached 6,039.7 trillion rials ($18.8 billion) by March 20, up 31.6% to the year. It was of the declining order throughout the last fiscal year, dropping from an annualized 42.1% in mid-August.
Data show that the CBI’s foreign assets alone added 21.3 percentage points of the monetary base in the said period. A month before, this was 7.7 percentage points of the annualized 33.2% increase.
The pruderies are such that the CBI buys the government’s oil export income and gives the equivalent in rial. This has exploded money supply because most assets owned by the CBI and banks are blocked overseas due to the 2018 US economic blockade.
In short, the CBI is forced to “print money” or issue new money to pay the rial equivalent of the government’s overseas forex income to which it has no access.
Bank debts to the CBI accounted for 6.3% of the total expansion of monetary base at the end of last year. This was lower on the month before when such debts added 15 percentage points to the monetary base.
Lower bank debt to the CBI also indicate that lenders now depend less on the central bank and are able to meet their liquidity needs via the interbank market. The CBI regularly implements open market operations to manage money supply in the interbank market.
Monetary data in the CBI report also show that broad money stood at 48,324.4 trillion rials ($151b) at the end of last year, which was 39% from the previous year.
As for the components of money supply, the CBI said money (M1) stood at 9,865.8 trillion rials ($30.8b) -- 42.8% higher on April 2021.
M1 is composed of physical currency and coins, demand deposits, travelers' checks, other checkable deposits and negotiable order of withdrawal (NOW) accounts. It includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.
On the flip side, near money (M2) stood at 38,458.6 trillion rials ($120b), up 38.1% on an annualized basis.
M2, also called near-money, refers to less liquid assets that can be quickly exchanged for cash. Examples are bank certificates of deposit and treasury bills.
As per the CBI report, the money multiplier was 8.001 as of March 20, increasing 5.6% from the corresponding period last year.
The figure indicates that with each rial created by the banking system money supply increased by 8 rials.
Money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
