Tsunami of inflation and the useless version of increasing the authority of the central bank
Some experts believe that the granting of new powers to the central bank this time is to go through at least two more risky stages this year. The prediction of an inflationary explosion in June and then in August has been given to the government many times and it seems that the government can only hope to overcome these two critical bottlenecks by giving special powers to the central bank to control the monetary base and the value of the national currency. to pass
The eighty-sixth meeting of the Supreme Economic Coordination Council of the Heads of State was held on Saturday evening, with the order to continue the review of the currency powers of the Central Bank of the Islamic Republic of Iran, with the presence of the Heads of State and other members and chaired by the President. In this meeting, with the aim of creating economic stability and maintaining the value of the national currency, it was agreed to increase the currency powers of the Central Bank.
Reducing the value added tax on the import of some basic items and goods was one of the other approvals of the Supreme Economic Coordination Council meeting.
Increasing the authority of the central bank without controlling the currency market
The powers of the central bank were increased on Saturday with the aim of “creating economic stability and maintaining the value of the national currency” in the meeting of the Supreme Council for Economic Coordination of the Heads of Powers. Bank had increased.
Earlier on the 6th day of Bahman last year, the same council approved the powers requested by the Central Bank to “maintain the value of the national currency and control inflation”, but the result of this increase in powers did not lead to much scientific and practical action in the currency market.
After that, on April 7 of this year, a member of parliament announced the approval of the law to increase the central bank’s powers and said that with this law, an effective step will be taken to curb inflation and control liquidity. At that time, Mohammad Taghi Naqd Ali said: “The most important problem of the country and the people is related to livelihood issues and specifically inflation, and the parliament takes any action needed to curb inflation through legislation and supervision.”
But for the second time in the evening of May 11, the heads of the three powers approved the granting of authority to the Central Bank in the meeting of the Supreme Coordination Council. At that time, IRNA reported that “the Supreme Coordination Council of the Heads of State, in its meeting last night, gave the Central Bank new and special powers to manage the foreign exchange market… According to the resolution of this meeting, tomorrow’s gold transactions, like tomorrow’s currency transactions, were recognized as prohibited and illegal. And the activists of this market will be prosecuted for the crime of economic disruption. Ali Salehabadi, the head of the central bank, said yesterday on the sidelines of the government board meeting that the central bank will soon be given special powers to manage the currency market.
Three times the increase of authority and the result is not clear
In this way, the powers granted in the meeting on Saturday, May 30, should be considered as the third stage of granting special powers to the Central Bank. The powers that have been given to the central bank every time, but so far, of course, it has not been able to show its impact on the lives of the citizens, but only two months after the powers were granted, the inflation reached 55% in the month of Farudin. 36 thousand tomans has progressed to 52 thousand tomans and the inflation of the housing sector has exceeded 50% and this statistic is only a handful of examples of what has happened in Iran’s economy in recent months.
But now the truth is that the central bank has not been able to control the exchange rate with all these increased powers in recent months and after setting a record of 60 thousand tomans, the price of each US dollar is now fluctuating in the range of 50 thousand tomans.
The central bank’s performance in the past six months has been such that many have clearly stated that in the past year, the value of the Afghani against the dollar has remained stable and even strengthened a little, so that last March, every US dollar was worth 91 Afghani and today Its price has decreased to 89 afghanis, and against the Iranian rial, it crosses more dangerous borders every day.
On the other hand, some experts believe that new powers will be given, but this time to go through at least two more risky stages this year. The prediction of an inflationary explosion in June and then in August has been given to the government many times and it seems that the government can only hope to overcome these two critical bottlenecks by giving special powers to the central bank to control the monetary base and the value of the national currency. to pass
Dr. Hojatullah Farzani, an economist and banking expert, believes that in order to control inflation, we need liquidity control more than special powers for the central bank whose indicators can be quickly evaluated.
This economist told Economy 24 about the purpose of granting special powers to the Central Bank for the third time in the last three months: “This issue has a different color than the issue of controlling the exchange rate, and in this case it seems that most of the monetary policy is in the new powers. It has been taken into consideration.”
He further said: “Based on the existing law and the monetary and banking law of the country, the central bank needs more powers to some extent, and it was from this aspect that it requested to receive legal powers for this issue so that it can conduct monetary policy with new powers.” and control the currency market more effectively. However, how effective the granting of these powers is, the performance of the central bank should be monitored and evaluated after receiving the powers, and what actions have been taken.”
An effect to be expected
Further, Farzani tells Ekonom 24 about the importance and possible impact of these powers: “Given that the powers must be signed and granted by the heads of the powers and given to the Central Bank, a period of time is definitely needed, and on the other hand, the powers and The decrees granted by the heads of the powers are for a maximum of one year, and since the decree of the law is temporary and for one year, the central bank can also plan on these powers for one year. In this regard, the performance of the central bank should be fully reviewed after receiving the authority, but if we want to deal with this issue in the short term and review the performance, we must accept to some extent that it has succeeded in establishing relative stability in the currency market.
Referring to the currency situation in May and the liquidity pressure in June, which can cause tension in the market, this economic expert states: “The examination of the currency situation in May shows that at least the government has succeeded in keeping the currency price in a stable channel. Keep in mind that according to the special powers that were granted to the central bank on 11 May, although the rate in the informal market was high, at least stability was maintained. Of course, all these conditions and reviews should be postponed to June 31st, which mainly increases the liquidity pressure and causes excitement in the market, and then the performance of the central bank will be reviewed. “Whether granting these powers at that time can help the market and whether the central bank will still be able to maintain stability in the currency market is one of the things that should be evaluated and reviewed at that time.”
Referring to the crisis of inefficient and outdated laws of the Central Bank, he also notes: “Based on the powers granted to the Central Bank in 1351, some issues are definitely not included in the executive powers of the Central Bank after half a century. And sometimes it is necessary for this bank to use ways such as using the powers of the heads of forces to get the possibility of better implementation and decision making. In the discussion of inflation control and monetary policy, of course, the central bank needs to have more powers, which probably allowed it to enter some markets in these powers, so that it can implement its monetary policy better, and we have to wait and see what the outcome will be. In the end, the central bank will have the authority after this.”
Farzani adds: “Now it is not possible to speak very precisely about these powers and the performance of the central bank, and we must wait a little to see historically, the fluctuations that occur due to the liquidity pressure in June, September and in autumn and winter, in each When this crisis occurs, what actions will the central bank take and can it maintain or improve the situation and create stability? If this issue is realized, then it can be said that the powers granted to the central bank are effective and if they are not effective, these powers should be reviewed.”
Liquidity crisis
In another part of his speech, this expert on economic issues refers to the great liquidity crisis in the country and emphasizing that without solving this crisis, increasing the powers of the central bank is useless, he told Ekonom 24: “Of course, what is the control in all these issues?” Exchange rate and monetary policy, the problem comes back to liquidity pressure and we must first control the liquidity issue in the country. Although sometimes we give the wrong address that the exchange rate should be controlled, but the truth is that we need a double effort in the economic environment of the country and the institutions and between the officials, that the control of liquidity is a priority, because the control of liquidity prevents the depreciation of the currency and “If this devaluation of the national currency does not happen, we will have a stable exchange rate.”
He further pointed out that the reason for granting new powers to the Central Bank may be to overcome the inflationary situation of June and bear the inflation of the markets in the coming months. is necessarily out of the issue of stabilizing the currency market, and it seems to be more to control inflation, and probably the inflation control working group that was formed by the presidency to control inflation has come to the decision that the central bank should have more powers to control inflation. able to carry out the desired policy correctly and maybe he can bring some organizations and institutions with him with these powers so that he can finally achieve the goal of monetary policy in the discussion of inflation control.
Referring to the lack of effective and up-to-date laws in the country’s banking sector, Farzani reminds Economy 24: “It has been several years now that the Parliament’s Economic Commission has two proposals in the discussion of new laws for the central bank and banking, and of course the government’s bill This has been the case and the work had been progressed to some extent, and later the representatives and members of the economic commission of the parliament also entered into this issue and proposed the banking plan and law. These cases show that the need to rewrite the banking laws in the country and the laws of the central bank is well felt and these laws should be revised.”
In the end, this economic expert states: “It has been several years since measures have been taken to pass new laws in the field of banking, and now considering that the general aspects of the new banking bill have been approved in the parliament, the work on its details continues, so that the laws There is no doubt that it should be reviewed and a series of changes should be made in accordance with the conditions.”
Source: Economy 24