Central Bank of Iran data show relatively higher growth in assets that can be readily cashed compared to less liquid assets.
Value of money, or M1, stood at 12,742 trillion rials ($35.89 billion), up 56.1% by the end of sixth calendar month to September 22. It jumped 29.2% in six months since the beginning of fiscal year in late March.
Quasi-money, or M2, which reflects less liquid assets grew at a slower rate to 43,206.8 trillion rials ($121.7 billion) -- up 32.9% y/y. It climbed 12.3% in six months – a slower pace compared to M1.
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 22.8%, up from 20.4% in March. Likewise, M2 accounted for 77.2% of the total money supply, declining 2.4 percentage points compared to 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 918.2 trillion rials ($2.58b) by September 22 – 26.3% higher on the same period last year. It was up 6.2% over six months since March.
Key Monetary Data
The CBI said broad money and the monetary base continued to decline in the calendar month to September 22. Broad money stood at 55,949.3 trillion rials ($157.6 billion) in the said period, up 15.8% in five months and 37.5% higher y/y.
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 2.5% of the broad money growth.
“Excluding the merger of general ledgers, broad money would have risen by 35% on an annualized basis,” the CBI noted.
Likewise, the monetary base stood at 6,907.3 trillion rials ($19.45b) in the same period, rising 14.4% in six months.
The regulator said the growth has tamped down as the monetary base expanded 11% in the first five months of the last fiscal year. It rose 33.1% in 12 months, down considerably from the annualized 42.1% increase in the same month last year.
Money multiplier stood at 8.100, up 1.2% in six months and 3.3% higher on the similar period last year. This indicates that with each rial created in the banking system, money supply increased by 8.100 rials.
