Dollarization: Cause or Effect of Inflation?

EghtesadOnline: The effect of liquidity growth on inflation usually emerges with a delay, but what accelerates the growth of inflation in the short run is the speed of liquidity circulation and the share of “money” in the composition of liquidity, which is actually a reflection of inflation expectations.

News ID: ۷۵۲۴۷۱

01 May 2023

The effect of liquidity growth on inflation usually emerges with a delay, but what accelerates the growth of inflation in the short run is the speed of liquidity circulation and the share of “money” in the composition of liquidity, which is actually a reflection of inflation expectations.

This was stated by Abdolnasser Hemmati, the former head of the Central Bank of Iran, in a write-up for Ecoiran.com. A translation of the text follows:

The latest CBI report shows the higher intensity of the growth of “money” in liquidity vis-à-vis the decline in the growth of another component of liquidity, i.e., “quasi-money”. Although the growth of liquidity has decreased, it was mainly thanks to the decline in the increasing coefficient of liquidity creation, following restrictions on the growth of banks’ balance sheets and the decline in the growth of “quasi-money”.