The exchange rate for the U.S. dollar reached a new landmark in Iran – an unprecedented 210,000 rials per dollar – and the government cut off access to international banks by rejecting FATF provisions.
To meet the budget deficit, the government has based its policy on amassing people’s liquidity and pouring it into the stock exchange, which is essentially looting people’s money. The government will gain from increasing the price of the dollar, but it will cause a terrible inflation that will bring the people into an economic impasse.
The question is: Iranian regime Supreme Leader Ali Khamenei’s wealth is reported to be about $200 billion, so why doesn’t he spend it to resolve government budget deficit or to help the people in need during the coronavirus crisis?
The regime’s strategy is based on export and spread of terrorism and fundamentalism in the region and interfering in other countries affairs. Therefore, the regime spends the Iranian people’s wealth for its warmongering policies and tries to expand its missile program and the capabilities of the Revolutionary Guard (IRGC). After 40 years, the regime neither wants nor can help the people.
If the current situation of Iran was different, there would never have been over 65,000 coronavirus deaths in Iran. The poverty would not be so severe, and the dollar and inflation rates would not be at this point.
If the regime aimed to spend Khamenei’s wealth to help the Iranian people, it would mean that the regime has changed its nature and no longer seeks its missile program or regional interference. Then, the regime will no longer be able to suppress the Iranian people and stay in power.
Therefore, it is no use thinking that this regime can reform. The only way is the overthrow of the mullahs in Iran and replacing them with a viable alternative, the National Council of Resistance of Iran (NCRI).
Understanding inflation in Iran
The Sobh Eghtesad news agency, based on data provided by the International Monetary Fund, reported that Iran with inflation at 41.1%, had the fifth-highest inflation rate in 2019. According to this report, Iran ranks 182nd out of 186 countries.
The reason for this is the economic pressure on the people and structural reasons for inflation. Government budget deficit and its way of using the central bank and high volume and destructive liquidity that has even exceeded the value of Iran’s GDP have added to this.
The increase in liquidity in recent years has been so unbridled that the growth of liquidity in one year ending in December 2018 was more than 28% and the volume of liquidity was over 2263 thousand billion tomans. This is while the figure is 28% higher than the country’s average 50-year liquidity growth rate (25%).
The reason for the increase of prices for goods such as housing, cars, etc. or the jump of the stock market index, is the increase in liquidity, or in other words, the existence of stray liquidity.
Meanwhile, the coronavirus outbreak and the rise in costs as its result, has increased the budget deficit problem of 2020. In addition to the rise in costs, this year, the government also faces a sharp drop in revenue. The most important streams for reducing revenue are falling oil prices and tax revenues.
According to the Majlis (regime’s parliament) Research Center, usually, the first solution for governments to cover the budget deficit is to use the basic monetary resources, which is, of course, the riskiest method of financing. The calculations show that every 10,000 billion tomans increase in the monetary base at the end of 2020, will lead to a 2.5% increase in liquidity. Of course, in the case of inflationary effects, this liquidity will increase.
In fact, some of the inflationary effects of rising liquidity may not occur in 2020 due to declining demand anticipated by the coronavirus outbreak. The declining in demand has slowed down the flow of money in the economy, and it can be assumed that 2020 will be one of the years when the flow of money is at its lowest, and therefore inflation will not be commensurate with the growth of liquidity.
However, in the coming years, in a post-coronavirus situation and the return of demand to previous levels, the inflationary effects of increased liquidity will appear.
The head of the Central Bank recently officially announced the inflation target of 22% with a 2% deviation as the official target. Its policy tool for achieving this inflation target is the interest rate, a symbol of which is reflected in interbank interest rates.
In recent years, the experience was that if interest rates go beyond personal limits, not only will they not have a long-term anti-inflationary effect, but they will keep liquidity growth high and create a mysterious and shocking form of inflation. The current monetary and fiscal policies of today will only increase inflation. Today, the monetary base has increased, liquidity has increased; the price of goods and services has risen, the price of currency etc. has risen.
These numbers tell us that it’s hard to control this unbridled inflation anyway.