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Iran: Banknote Printing and President’s Hollow Promises

Ebrahim Raisi claims he has solved Iran’s financial crises without printing unsupported banknotes while Central Bank’s report is the other way around.
Ebrahim Raisi claims he has solved Iran’s financial crises without printing unsupported banknotes while Central Bank’s report is the other way around.

Iran’s President Ebrahim Raisi has recently declared that he does not intend to increase the country’s liquidity. “I decided to compensate for budget deficits and decrease inflation,” he said. However, how is he supposed to perform such claims?

In a nutshell, liquidity means the government’s debts to the people. Therefore, as this number was higher, the government owed more debts to citizens. Liquidity also includes:

–Banknotes or coins

–Savings or bank credits

–Budget deficits, which led the government to receive loans from the banking system

–Banks’ debts to the Central Bank

In Iran, the productive economy has been destroyed due to the officials’ mismanagement. The government spends national resources on exporting terrorism, advancing ballistic missiles range, nuclear bomb-making projects, and funding extremist groups in the Middle East.

The Islamic Republic’s ambitions have also brought international sanctions and restrictions, almost blocking the country’s income. Hence, the government deals with massive budget deficits. To compensate for these deficits, officials have printed unsupported banknotes or taken loans from the Central Bank of Iran (CBI), sinking the country into a liquidity crisis.

In other words, since there is no actual production and revenue, the government has injected unsubstantiated money into the market. This issue has increased the demands. However, the prices are measured by U.S. dollar exchanges, meaning more devaluation of the national currency rial against the dollar and other foreign exchanges.

In this respect, the prices are constantly increasing, and liquidity intensifies inflation. In such circumstances, citizens are the foremost victims, and they feel the backbreaking inflation through their empty product baskets. However, who is to blame for liquidity?

“Ninety percent of the country’s liquidity is in banking deposits, and only 2 percent of investors control 90 percent of these deposits,” said Mohammad Noei, an economist of the Parliament (Majlis) Research Center, in an interview with the state-run Bazaar website on October 4, 2020.

Indeed, only 2 percent of investors—not Iran’s population, who are either the ayatollahs’ children ‘Aghazadeh’ or influential officials’ affiliates – control over 80 percent of liquidity in Iran.

However, Raisi claims and boasts about resolving financial crises and overdue salaries without printing banknotes or increasing the monetary base. “Some governments had declared that the treasury was empty. You may criticize me, saying, ‘you have begun with complaining,’ if I speak out about the treasury’s situation,” Raisi admitted.

Nonetheless, how could Raisi—who lacks a classic education—resolve economic dilemmas in a short period despite an empty treasury and horrible financial conditions? Particularly when official sources announced that the country’s oil revenues had decreased by at least 70 percent, the government faced a 4-quadrillion-rial [$14.424 billion], meaning nearly 50 percent of budget deficits.

On the other hand, Raisi’s lack of a classic education trapped him to ambiguous claims. He, indeed, claims that he has resolved financial dilemmas without referring to the CBI or printing unsupported banknotes. In contrast, his aides had already admitted that the government creates 43 trillion rials [$155 million] of liquidity every day.

“It is undeniable that this year, we face a massive budget deficit. This deficit was usually offset through borrowing from the CBI. Increasing the monetary base is, in fact, taking out of people’s pockets through increasing the prices,” said state-aligned economist Morteza Afagheh.

The government also resorted to printing and selling financial securities to compensate for its budget deficits. “From August 20 to September 20, the government was able to sell 270 trillion rials [$973 million] of financial securities,” said Economic Affairs Minister Ehsan Khandouzi.

“However, how long would the government continue such plans? Truly, it should pay these securities’ profits in addition to their prices next year while there are no clear resources. Therefore, this is another play at the expense of citizens, and their food baskets would be shrunk more and more,” observers believe.

Printing and selling financial securities allow the government to postpone its debts to the future, but such performances bring more economic crises for this government and the upcoming ones, mainly while the entire Islamic Republic deals with a hyper economic turmoil. In other words, the government puts the country’s future on auction through selling financial securities and leaves much more difficulties for the next generations.

“While government officials describe ‘denial of borrowing’ as their most prominent achievement, a CBI recent report indicates the government has leaned to banks in contrast to these claims,” wrote Arman Meli paper on October 23.

“Consequently, there is no obvious difference, and the CBI has to print banknotes to offset additional overdrafts and turning banks’ properties. Therefore, Raisi’s economic team even does not know that inflation and growing of liquidity are not the sole outcomes of direct borrowing from the CBI while withdrawing from banking reserves will result in inflation.”

Furthermore, individuals familiar with the country’s financial system believe that “Banks themselves are the root of corruption, embezzlement, and skyrocketing thefts,” said Saeed Leilaz in an interview with Eqtesad 24 on October 20. “They receive people’s money via interesting and deceitful ‘profits.’ However, they give loans to those who are supposed not to return the money.”

Nevertheless, the reality is far more noticeable than claims raised by Raisi, or parts of details leaked by state media. Indeed, citizens feel the government’s failure to address their economic dilemmas and demands with their blood and flesh.

In just two recent months, the prices of most essential goods such as bread, rice, oil, eggs, and sugar have significantly soared. Official stats show that inflation has surpassed 60 percent, and the condition of point-to-point inflation is far disastrous. House renting has increased by 48.4 percent in comparison to the same period last year.

All the facts mentioned above show Raisi has been paralyzed to resolve the country’s economic dilemmas despite his promises and unlimited support by Supreme Leader Ali Khamenei and the Islamic Revolutionary Guard Corps (IRGC). This is a significant point in the theocracy’s history, revealing the state’s failure to address people’s grievances, putting the Islamic Republic regime in an awkward corner.