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Parliament Warns Iran Might Get Hyperinflation By End Of March 2019
The parliament's research attributes the looming hyperinflation to "the quantity and quality of liquidity growth in recent years, fluctuations in the forex market and price rises during recent months." According to the report, liquidity has more than tripled between 2013 and 2018, rising from 5,063,000 trillion rials to 16,720,000 trillion, adding that during the period a large part of the cash in the market consisted of various forms of travellers cheques or quasi-money so that bank notes constituted only 15% of the money in people's hands. If we convert these figures to U.S. dollars based on the current free market rate, it would be $500 billion and $1.5 trillion respectively; but this does not mean Iranians have actually the equivalent of so much dollars. Their money is in local currency, which is not as fungible as a hard currency, such as the U.S. dollar. The growth in liquidity means that the government has printed money to pay salaries and bills. Then what about inflation? So much liquidity is bound to lead to loss of value for the money. Economic hardship, signified by rising prices have led to mass protests in Iran this year. This photo shows protestors in Shiraz on August 2. Actually, there is double digit inflation approaching hyper-inflation. But so far, it has been somewhat controlled because of very high interest rates, the parliament report says, and the fact that a lot of the money in circulation is not in the form of banknotes. However, a hangover is the wrath of grapes... if availability of actual money increases, hyperinflation will be unavoidable, the report concludes. The parliament's research center has suggested three solutions for the problem of liquidity and high inflation: Reducing the volume of liquidity, managing and controlling the existing liquidity level, and managing the creation of new liquidity. The research center has advised that banks should sell their surplus assets, control high-volume banking transactions and try to stabilize the foreign exchange and gold coin markets. Other measures suggested by the Majles research center to control inflation include taxing capital gains on foreign currency, gold coins and real estate, facilitating long-term deposits for two years or more, and reducing the interest rate on short-term deposits. Posted by: Fred 2018-12-30 |
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