The policy report on the necessity of calculating "money in a broad sense" in the Iranian economy was published
News_Code: 355217 5/18/2021 10:06:04 AM
The policy report on the necessity of calculating "money in a broad sense" in the Iranian economy was published
The Monetary and Banking Research Institute published a policy report on calculating "money in a broad sense" in the Iranian economy.
 

According to the public relations of the Monetary and Banking Research Institute, the introduction of this policy report states: Proper and timely preparation of statistics related to monetary aggregates plays a vital role in monetary policy analysis of the future trend of key economic indicators such as inflation and the timely adoption of monetary policy. Countries do not use a single definition for monetary aggregates (in dimensions wider than M1) based on international experience. This difference in approach in choosing definitions and combining the components of each definition relates to various factors such as the structure of financial markets, use of new technologies in the field of payment, variety of financial instruments, and their scope in the main functions of money.

Two important principles should be considered in choosing a broad definition of money: 1) The financial instruments included in the definition should have a minimum liquidation (a reflection of the nature of the currency exchange instrument). 2) The broad definition of money must have a stable and predictable empirical relationship with inflation. This feature makes monetary aggregates a useful tool for monetary policymakers because they indicate medium- and long-term inflationary pressures.

These two important principles have led countries to make major changes in their definitions of monetary aggregates in recent decades so that it can be said that the definition of money in its broadest sense changes over time depending on the economic structures and financial markets of countries. And it has a dynamic nature. However, the definition of monetary aggregates in Iran has remained unchanged over the past few decades. On the other hand, there are serious weaknesses in the existing definitions under the International Monetary Fund guidelines, which makes necessary the correction of the statistics provided by the Central Bank. Because the presentation of monetary statistics under international standards increases the efficiency of monetary policy and increases the accuracy of economic forecasts in this area.

In this report, considering the experiences of countries in defining monetary aggregates, we will try to provide a broad definition of money that can adequately reflect the amount of liquidity in the economy, given the structure of financial markets in the Iranian economy.

Summary and recommendations

In recent years, due to developments in financial instruments in Iran, it is necessary to provide a broad definition of money to better understand inflationary fluctuations. In order to achieve this, as mentioned, in defining money in a broad sense, three important dimensions of money issuers, money holders, and financial instruments must be determined. Regarding the country's monetary statistics, it is necessary to seriously reconsider the holders of money because state-owned companies and non-governmental public institutions are not considered holders of money. Therefore their deposits in the banking system are not part of the broad definition of money. According to the International Monetary Fund and global experience, only the central government is excluded from money holders, and local governments, municipalities, state-owned non-financial corporations, and public institutions are included in the definition of money holders.

According to global experience, credit unions and credit cooperatives are also part of the definition of depository corporations in the case of money issuers. Despite the effective measures taken by the Central Bank in organizing unlicensed credit institutions and increasing the statistical coverage of authorized non-bank credit institutions in recent years, credit cooperatives[1] still do not separately enter the definition of monetary aggregates as issuers of money. However, given that the managers of these cooperatives deposit a significant portion of the attracted deposits in banks and non-bank credit institutions, they are indirectly entered into monetary aggregates. However, the lack of accurate statistics on the deposits of individuals in these credit unions is one of the challenges for them as issuers of money in the definitions of monetary aggregates as in other countries. In relation to financial instruments, securities other than stocks can be broadly defined in terms of money or liquidity, depending on the maturity and issuer of the securities. For example, government bonds with maturities of less than two years can be included in the definition of M3 and over two years in the definition of liquidity.

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[1] According to the Central Bank, the number of authorized credit cooperatives is 179, most of which are guild (class) unions.