Money Creation: A Vicious Circle

EghtesadOnline: The imbalance of banks is among the main contributors to inflation in Iran’s economy. This imbalance is mainly formed as a result of the government’s financing methods and sets off the growth engines of inflation.

News ID: ۷۵۲۴۹۰

05 May 2023

The imbalance of banks is among the main contributors to inflation in Iran’s economy. This imbalance is mainly formed as a result of the government’s financing methods and sets off the growth engines of inflation. In general, governments have two ways to make up for their budget deficits, either through reaching directly to the central bank and borrowing from the country’s monetary institution, or by taking out facilities and cash from banks and state-owned companies. Hadi Haqshenas, economist, prefaced his write-up for Persian daily Jahan-e Sanat with this note. Below is a translation of the text.

The funds provided by the banks to the government are obtained from borrowing and overdrawing from the central bank. Recent monetary data show that the amount of liquidity in the country has reached 61,030 trillion rials [more than $113 billion billion at current exchange rate]. One of the main roots of inflation is the imbalance of banks or the growth of their overdrafts from the central bank.