Broad Money Grows 34.2%

EghtesadOnline: The Central Bank of Iran reported that growth in broad money supply picked up during one year, rising by 34.2% by end of the calendar month to June 21 compared with the same period last year.

News ID: ۷۵۰۵۴۰

27 July 2020

Broad money reached 26,571.7 trillion rials ($115 billion) by June 21, growing 6,772.6 trillion rials ($29b) during the year.

The CBI report indicates that the money supply grew 7.5% in three months from the beginning of the fiscal year on March 20.

It also reflected on the main components of the money supply including the entire money circulating in the economy plus quasi money.

Accordingly, the share of money (M1) in the financial system was 5,020 trillion rials ($21.8 billion) by June 21, indicating a 61.5% growth on year-on-year basis. M1 also increased by 17.5% during the Q1.

The value of quasi-money (M2) amounted to 21,551.2 trillion rials ($93.7b) to post 29.1% rise annually and 5.4% in Q1.

M1 is money supply composed of physical currency and coins, demand deposits, travelers' checks, other checkable deposits and negotiable order of withdrawal (NOW) accounts. 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.

The total value of banknotes and coins in circulation was 578 trillion rials ($2.5b) by June 21 – up 15.1% compared with the same period last year. This, however, declined by 5.5% during the course of three months since the beginning of the fiscal year.

In an earlier press release the CBI said increase in money supply was expected and understandable, linking it to financial assistance to the needy households and businesses hit hard by Coivid-19. The pattern of government borrowing from banks was another key factor.

The CBI was instructed by the government in April to help low-income households and businesses impacted by the deadly virus that has devastated developed and developing economies,

The government had approved 750 trillion rials ($3.2b) in financial aid, from which 500 trillion rials were given as loans to SMEs and the remaining to needy families in the form of interest-free micro credit.

In a statement earlier, the CBI attributed the exploding liquidity to “mounting pressure on the government budget due to tough restrictions on oil export... and the central bank’s purchase of currency from the National Development Fund of Iran”.

NDFI resources largely come from oil and gas exports kept in an account with the central bank. However, due to money transfer limitation arising from the US sanctions, the NDFI’s quota from the oil revenues is registered as the CBI’s foreign assets in the bank’s balance sheet. It means that the NDFI in reality doesn’t access its foreign exchange assets blocked in overseas banks. Therefore, when the government borrows from the fund, the CBI in reality has to give the amount in rial but since the NDFI’s forex revenues are not accessible to back the lending, the bank has to print money to lend to the government, thus expanding money supply.

Monetary Data

As per the CBI report, total assets of banks, including foreign assets plus government and non-government debt to lenders, reached 56,294.7 trillion rials ($244b) by the end the Q1, up 29.3% compared to the same period a year before.

Banks had more than 12,586.4 trillion rials ($54b) in foreign assets, indicating 36.1% growth on year-on-year basis. Assets grew 8.7% in Q1.

The government sector, including government and state-owned companies, owed 4,466.3 trillion rials ($19b) to banks by June 21 to indicate 28.5% annual growth.

Data showed the value of CBI assets was 8,423.7 trillion rials, showing 13.8% yearly increase. The bank’s foreign assets grew by 21.6% to stand at 5,507.4 trillion rials ($24b).

Likewise, commercial banks had 7,635.4 trillion rials ($33b) in assets by the end of Q1, 32% higher than the end of the same quarter last year. Foreign assets accounted for 784.3 trillion rials ($3.4b), posting 39.3% annual increase.

The value of assets held by specialized banks amounted to 8,534.4 trillion rials ($37b), 37.4% higher than the Q1 of last year.

Total value of foreign assets held by specialized banks reached 2,068.2 trillion rials by June 21 – up 85.2% in one year.

Finally, assets of non-government banks and credit institutions amounted to 31,701.2 trillion rials in the period showing 31.4% annual increase.

Non-government lenders owned 4,226.5 trillion rials in foreign assets, which was 39.1% higher than the last year’s Q1.