Iran's Central Bank Printing More Money Amid Crisis
Mardo Soghom
Iran International
As Iran’s economic situation worsens, Tehran media report that in the past seven months more than 1,000 trillion rials were printed and added to the money supply.
Iran International
As Iran’s economic situation worsens, Tehran media report that in the past seven months more than 1,000 trillion rials were printed and added to the money supply.
Taking an average of the US dollar exchange rate, the amount comes close to just $4 billion, but Iran has been lavishly printing more money since 2018 when the United States imposed economic sanction after it withdrew from the Obama-era nuclear accord known as the JCPOA.
The astronomical amount in rials constitutes 18 percent of the money supply in this period. In August the money supply had reached 50 quadrillion rials. That is 50 with fifteen zeros.
Mahmoud Jamsaz, an economist in Tehran told Khabar Online news website in July that in the past Iranian year, from March 2021-to March 2022, the government was printing the equivalent of $15 million a day to finance its budgetary shortfall. That is 3.8 trillion rials every day.
The accumulated weight of the money in circulation has effectively devalued the currency, rial, by more than tenfold since early 2018. Money changers in Tehran on Thursday were selling one US dollar for 384,000 rials, a jump of more than 30 percent in one year.
US oil export sanctions have cut Iran’s shipments in half, which mostly go to China, but according to the desperate government in Tehran, all exports are up, and the picture is rosy. However, talking up the rial is not an effective strategy any longer, because few people believe the president, much less other officials.
In order to partially slow down the rial’s fall, the central bank injects dollars into the market, as can be detected from daily exchange rate fluctuations in Tehran, but no official information is given out.
Latest reports on social media indicate that the currency’s fall is not viewed as a normal trend anymore and a panic is setting in to buy foreign currencies and gold. This in turn accelerates the crisis, especially in the light of political uncertainty triggered by three months of anti-regime protests.
The biggest immediate reason for printing money is government borrowing from the Central Bank of Iran (CBI) to bridge its budget deficit estimated to be 50 percent. But the CBI has little gold or foreign currency reserves to back the rial banknotes it prints. The rial is not a fungible currency like the US dollar and no one invests in buying excess rials, the same way hard currencies function and better maintain their value.
The printing presses at the CBI were especially working overtime from September 21 to October 20 - the Iranian month of Mehr. This is after it became clear that talks with the United States to revive the JCPOA had hit a snag, and also after popular protests erupted.
This means that pessimism took hold in Tehran and people began hording dollars. In addition, the government was losing on tax collection as unrest closed businesses, while it had to paying extra to tens of thousands of security forces to keep them in the streets against the protesters. The government was perhaps also forced to be more generous with ordinary salaries, making timely payments to prevent more people from joining the unrest.
Another reason mentioned by local media is the scenario whereby government-owned banks began demanding money from the central bank amid their own balance sheet crises. The CBI charges the banks 21 percent interest for loans, which boosts the already 50-percent inflation rate.
Local sources say that bank borrowings from the CBI even accelerated in November and reached 910 trillion rials, which means the central bank has to print even more money in the coming weeks.
Kyiv Mayor Vitali Klitschko said that air-defense systems shot down 10 Iranian-made Shahed drones and that there were explosions in the central Shevchenkivskyi district.
The Kyiv administration said that according to preliminary information, two administrative buildings in Shevchenkivskyi were damaged and information about potential casualties was being clarified.
The United States warned about Iran planning to deliver Shahed Kamikaze drones to Russia in July, something Iran has repeatedly denied, only conceding that it gave “some drones” to Russia before the Ukraine war began.
Russia began using the Iranian drones mostly against civilian targets in early October, with hundreds launched so far, but most shot down before reaching their targets.
Washington could announce a decision as soon as Thursday on providing the Patriot, two officials told Reuters on Tuesday. The Patriot is considered one of the most advanced U.S. air defense systems and is usually in short supply, with allies around the world vying for it.
Former Russian President Dmitry Medvedev has warned NATO against equipping Kyiv with Patriot missile defenses, and it is likely the Kremlin will view the move as an escalation.
But there have been Western reports in the past weeks of possible Iranian missile deliveries to Russia as its arsenal is running out due to extensive use against Ukrainian infrastructure targets that are now well defended with multiple systems, but not full proof.
The Patriot system would help Ukraine defend against waves of Russian missile and drone attacks that have pounded the country's energy infrastructure.
The United States and its European allies have also imposed rounds of sanctions against Iranian individuals and entities for their involvement in supplying drones to Russia. The latest instance of such sanctions was announced by the United Kingdom on Tuesday.
Foreign Secretary James Cleverly said UK sanctions were “taking the wheels off the Russian war machine.” A press release referred to “information” released by the US December 9 - apparently a statement by White House Security spokesman John Kirby - showing Iran had become “one of Russia’s top military backers.”
Gaining Patriot air defense capability would be "very, very significant" for the Kyiv government, said Alexander Vindman, a retired Army lieutenant colonel and onetime leader of Ukraine policy at the White House.
"These are going to be quite capable of dealing with a lot of different challenges the Ukrainians have, especially if the Russians bring in short-range ballistic missiles" from Iran.
Kyiv held high-level military talks on Tuesday with Washington, Ukrainian President Volodymyr Zelenskiy's office said. The United States has given Ukraine $19.3 billion in military assistance since Russia's invasion on Feb. 24.
One of the US officials said Ukrainian forces would likely be trained in Germany before the Patriot equipment was delivered. Vindman said the training could take several months.
The Pentagon says Russia's recent surge in missile strikes is partly designed to exhaust Ukraine's supplies of air defenses so it can dominate the skies above the country.
For that reason, the United States and its allies have been delivering more air defenses to Kyiv, everything from Soviet-era systems to more modern, Western ones. Washington has provided NASAMS air defense systems that the Pentagon says have flawlessly intercepted Russian missiles in Ukraine.
With reporting by Reuters