Did the Central Bank Have No Other Choice?

The Central Bank's decision to sell $2 billion to all individuals over 18 years of age, up to $10,000 per national ID card, raises numerous questions in the minds of the public, particularly politicians, economic experts, critics of the government, and others.

Ambassador Arjan-Economic Group: The Central Bank's decision to sell 2 billion dollars to the public over the age of 18 up to 10,000 dollars for each national card raises many questions in the minds of people, especially politicians, economic experts, critics of the government, etc. including the following questions:

Apparently, as far as it has been informed, the purpose of this decision is mainly to meet the needs of currency applicants; At the same time, it also has a partial view on regulating the currency market and preventing excessive price increases in this market. Certainly, the arguments related to the first goal are very weak; Because the applicants in need of foreign currency in Iran are almost known and apart from the industries and importers of essential goods who are currently waiting in line to receive foreign currency for a long time and many of them have even entered the customs area of Iran, low-expected applicants such as those who need one or more parts of the production line, patients who need special drugs, people who need influenza vaccine, non-recreational and pilgrimage travelers, students studying in other countries, etc. Maybe their heads will remain bare.

The excuse of regulating the currency market is not very popular; Because those who need to know the state of the country's foreign exchange reserves and access to it, they must be aware and it is enough to have 200,000 national codes at their disposal, which past experiences have shown that this number has the ability to be present in this market both potentially and actually. On the other hand, the almost insignificant difference between the banks' variable sales rate and the free market's volatile rate basically excludes small-scale applicants from this market (except for rent). Of course, the small gap between the two rates is completely understandable; Because it neutralizes the charge of giving rent to buyers to a large extent; However, if the price of the currency jumps in the short term, for example, the price of the dollar reaches 300,000 tomans within a few months, this stigma will be forever attached to the central bank and the government. Moreover, the distribution of $5,000 packages during the presidency of the late Hashemi and the presidency of the central bank of Mr. Adeli still remains as an unforgivable mistake in public opinion.

But the main reason, which has never been announced by the central bank due to the legitimate reason (the confusing disclosure of the government's bad financial situation), is the sale of 2 billion dollars to cover the minimum cost of rials for one month of the helpless government and prevent the inevitable crisis. Perhaps the question arises that in such a situation, it would not be better for a central bank to lend to the government through the issuance of high-powered money? In my opinion, the answer to this question is definitely no; Because granting loans to the government from the sale of foreign assets of the central bank has no effect on increasing liquidity and ultimately inflation; While the government's borrowing from the central bank will increase the total liquidity by about 7 times (with the current assumptions of 3500 hemat).

If these assumptions are correct, we can give a positive score to the central bank here. At the same time, it can be said with certainty that this justification is the reason for the agreement of the heads of state with the implementation of this decision. It is not possible to imagine that the central bank has implemented such an important decision on its own. However, at the moment, the head of the central bank is under the scrutiny of the government's opponents, and for this reason, one more positive point can be given to him.

2. Is this currency sourced from the central bank's national reserves or is it collected from the market?

From the words of the Governor General of the Central Bank, it can be concluded that a major part of this 2 billion dollars that can be offered to the public is due to the intervention in the foreign exchange market and from the surplus of purchases by the Central Bank compared to its sales since before the beginning of the 12-day war, which, if this assumption is correct, was a smart move; Especially if this surplus was mainly caused by the profits of the central bank's purchases and sales; Because otherwise, by injecting high-powered money to buy this surplus, this bank will play an essential role in increasing liquidity and inflation in the last 2 years, and later the transparency of confidential information will give this destructive role to the hands of decision makers.

Another point that can already be heard among critics for and against the government is the central bank's contribution to the multiple increase in the exchange rate during this period due to the creation of additional and large demand in the free currency market, which has been created to supply this surplus currency. The worst accusation against the central bank is that the central bank, with the knowledge of the upstream institutions, participated in increasing the exchange rate in order to provide more money to the war-torn government during the sale. It is not possible to give a convincing answer to these critics and public opinion in the absence of documented information on the foreign exchange transactions of the central bank for the past 2 years and to clear the basic ambiguities of the operations of the gold and currency exchange center.

3. Wouldn't it be better if these 2 billion dollars were targeted at basic goods instead of being allocated to the national code of persons for the country's basic needs such as medicine, raw materials and industrial intermediates?

Although the appearance of events does not show this, the central bank clearly and firmly states that there is enough currency to meet such needs. If such a claim is accepted, the central bank's action in allocating this amount of currency to the national code of individuals can be considered a significant difference between the free market rate and the official rate; That is, in case of selling this amount of foreign currency to the applicants subject to government allocation, he would lose an income of about one third exceeding the current 500, which is the difference of nearly 3% of the government's general budget, and passing it does not seem very simple. Now, by examining the above, it may be better to judge whether the central bank had another solution or not.