Liquidity in Iran Reaches One Million Trillion Tomans

On Friday, April 29, 2016, the Central Bank of Iran announced in a report that liquidity in Iran reached the threshold of one million trillion tomans by the end of Bahman 1394 (February 2016). The report specifies that liquidity in Bahman 1394 compared to Bahman 1393 grew by 28.7% to approximately 976 thousand trillion tomans. One million trillion in the American number system (short scale) is called a quadrillion, and in the British number system (long scale), it is called a billiard, which consists of one followed by 15 zeros (1,000,000,000,000,000). This liquidity figure recorded a growth of 24.7% compared to the end of 1393, meaning an increase of 193 thousand trillion tomans in the 11 months of 1394. The growth of liquidity in the 12 months ending in Bahman 1394 compared to the same period of the previous year was equivalent to 7 percentage points. According to the Central Bank's report, the monetary base at the end of Bahman last year grew by 12% and increased by approximately 16 thousand trillion tomans compared to the end of Esfand 1393, reaching about 147 thousand trillion tomans. The net foreign assets of the Central Bank grew by 11.7% and increased by 18.5 thousand trillion tomans, which was the most significant factor increasing the monetary base in the 11 months of 1394. An analysis of the components of liquidity in the Central Bank's report indicates that the amount of banknotes and coins in circulation at the end of Bahman 1394 reached 30 thousand trillion tomans, experiencing a decrease of 14.5% compared to Esfand 1393. The report states that the amount of money at the end of Bahman last year exceeded 123 thousand trillion tomans, which was a growth of 2.3% compared to the end of 1393. The figure for quasi-money in this report, which relates to the major monetary and credit variables at the end of Bahman last year, was announced to be over 852 thousand trillion tomans. The reaching of liquidity to the threshold of one million trillion tomans in Bahman 1394, alongside the decrease in inflation rates in recent months, raises the question for observers of how this occurred, given the high correlation between the growth rate of liquidity and the inflation rate in Iran's economy. The main reasons for the banking network's inability to perform its inherent function, as noted by economist Siamak Ghazemi in the Telegram channel of the Bamdad Research Institute, is the government's debt to banks and the Central Bank, which has caused 'this money to become frozen in Iran's economy and lose its potential for productivity.' The answer to this question lies in the ratio of figures related to money and quasi-money. As stated in the Central Bank's report, by the end of Bahman 1394, over 87% of total liquidity was in the form of quasi-money, which does not have inflationary effects in the short term. The accumulation of a significant portion of liquidity in the form of time deposits in banks can be one of the factors explaining the decrease in the inflation rate despite the significant growth of liquidity. However, the blockage of this volume of liquidity in Iranian banks has not allowed the banking network to effectively utilize these deposits in productive economic sectors and generate economic growth. According to the Central Bank's report, the total debt of the public sector to banks at the end of Bahman last year was over 117 thousand trillion tomans, of which over 113 thousand trillion tomans was the government's debt to banks. The government of Hassan Rouhani has committed itself over the past two and a half years to pay off the government's debts to banks, but these figures indicate that the government has not been able to achieve this goal in practice, although the speed of growth of government debts to banks has decreased. The total debt of the public sector to banks in Bahman last year experienced a growth of about 13% compared to the amount of government debt at the end of 1393. The remaining government debt in Bahman 1394 compared to government debt in Bahman 1393 experienced a growth of less than 20%. The growth rate of government debt to banks in Bahman 1393 compared to Bahman 1392 increased by 32%, while this ratio showed a decrease of about 19 percentage points in Bahman 1394 compared to Bahman 1393.