Iran’s former chief banker says the government has printed about $5.6 billion worth of national currency in the past year, aggravating the country’s inflation rate.
Abdolnaser Hemmati, the former governor of the Central Bank of Iran (CBI), said Monday that the annual growth of the country’s monetary base was about 41 percent in August, which means that the administration of President Ebrahim Raisi has printed about $460 million per month. Iran’s monetary base growth rate was 11 percent in 2011 and it rose to about 30 percent in the following 10 years. Since Raisi took office in 2021, the figure rose about 10 percent to nearly 42.
The monetary base in a country is the total amount of money created by the central bank, including the total currency circulating in the public, and the currency physically held in the vaults of commercial banks, plus the commercial banks' reserves held in the central bank. Inflation rises when the money supply of a country grows more rapidly than the economic output of a country.
Hemmati criticized the administration for its long promised but unrealistic claim of curbing Iran’s soaring inflation rate, asking, “How is it possible to control inflation with this volume of money printing?”
"Governments in Iran have become accustomed to spending more than they earn, which means they manage the country's finances by creating liquidity. In fact, the discrepancies in (the budgets of) the government, banks, and pension funds are all the result of overspending compared to income," he noted.
Hemmati described inflation as "the worst and most destructive form of taxation that halts savings and disrupts investment,” saying, “Although one of the reasons, and not the only reason, for inflation is negative shocks in the foreign currency market, trying to stabilize rial’s exchange rate without turning off the inflation engine results in more corruption, more capital flight, and further shocks in the currency market.”
Kamran Nadri, an economic expert and a university professor, said in an interview with KhabarOnline that the growth in the monetary base will lead to an even higher inflation rate. “Concerns regarding the inflationary effects of increasing the monetary base... are valid, and policymakers should take this matter seriously.”
Nadri added that the Central Bank tries to control the foreign currency market with government-mandated exchange rates, but this method has grave consequences. “For example, due to the volatile economic conditions and the possibility of the return of US maximum pressure sanctions, there is a risk that a shock in the currency market is triggered by even the slightest fluctuation, resulting in an increasing inflation.”
The warnings of accelerating inflation came as the Statistics Center of Iran (SCI) put the household inflation rate at 45.5 percent. According to SCI’s latest report released Monday, inflation was over 50 percent in about 10 provinces of the country, about one-third of the total.
The officials in the Raisi administration defend their economic policies and try to deflect the blame for the high inflation and devaluation of rial to the previous administration. Government spokesperson Ali Bahadori Jahromi said Tuesday that “no one can forget the 60% inflation and other negative economic indices of the administration of Hassan Rouhani.”
In 1978 before the revolution, one US dollar bought 70 rials, compared with around 40,000 in early 2018, and 500,000 now. The United States withdrew from the JCPOA nuclear deal in May 2018 and imposed both oil export and international banking restrictions on Iran, the so-called maximum pressure campaign. That quickly translated into higher inflation and a hasty retreat of the rial. The process has only picked up speed in the past year, as the rial fell from 260,000 to 500,000 per dollar.
Lawmaker Masoud Pezeshkian said Tuesday that problems that endanger the livelihood of people have worsened under the administration of Raisi, who have failed to keep up with his campaign promises. "Mr. Raisi promised to halve the inflation at the beginning of his term, but not only did inflation not decrease by half, but it rose significantly. Purchasing power has significantly declined, and ordinary employees can no longer afford their daily needs," he said.
Supreme Leader Ali Khamenei's Chief of Staff Mohammad Mohammadi Golpayegani confirmed the alarming number of people living in poverty in the country, claiming that people’s livelihood is one of the most pressing issues for Khamenei.
The SCI and the CBI claim that the rate of annual inflation has dropped to 45.5 percent, nearly the same level as a year ago, and the economic growth rate rose to above six percent between April and July. But official figures tend to underreport bad news and cannot be independently verified. One thing which is clear is that food prices have risen much faster than the official inflation rate, in some instances hitting 100-percent in 2022.
Many reports by local media say prices for some food items have also doubled in 2023, since last year. For instance, based on the figures released by the SCI, the price of mutton and beef have risen by 151 and 132 percent respectively this year.
Despite the government’s claims of economic success, a central bank report in September showed that the money supply increased by 45% this year, heralding higher inflation. In his speeches, Raisi boasts about controlling inflation and reducing money printing, and promises that the 50-percent inflation rate will drop to 30 percent by March 2024.
However, the report by the Central Bank of Iran (CBI) indicated that in April 2023 the money supply showed a 45-percent growth over the same time last year. Money in circulation reached a staggering 88,700,000 trillion rials or around $177.4 billion calculated based on the exchange rate of 500,000 rials per dollar. This is the highest level of money in circulation in Iran’s history, fueled by the government’s borrowing from the CBI that inevitably leads to printing money without any foreign currency or gold backing.
The Islamic Republic has always been printing excess money in its 44-year history, but at different tempos. When oil export revenues were high enough to support government expenditures, less money was printed. However, when oil prices declined or Iran was subjected to oil export sanctions, printing increased and rial’s value suffered.