نامه هشدار آمیز ۱۶۵ نماینده مجلس به سران قوا

In recent days, when the foreign exchange market has witnessed extreme fluctuations and price increases, a group of representatives of the 12th parliament criticized the country's foreign exchange policies by sending a detailed letter to Mr.

The authors of this letter believe that the current policy that increases official rates under the pretext of reducing the gap with the free market has actually led to the reproduction of the destructive cycle of “increase in exchange rate – inflation” and has reduced the incentive to return export currency. The following text is a review of the arguments of these representatives who, while diagnosing the existing situation, have presented five solutions to strengthen the national currency and reform the currency governance.

In the name of excellence

Honorable Mr. Dr. Mezikian, Honorable President of the Islamic Republic of Iran

Mr. Dr. Qalibaf, Honorable Speaker of the Islamic Council

Hojjat-ul-Islam and Muslims, Honorable Mr. Mohseni Ajeei, the Honorable Head of the Judiciary

Greetings and respect

As you know, in recent days and weeks, the informal market and currency smuggling have been facing severe fluctuations and a significant increase in the rate. Due to the fact that the Central Bank of the Islamic Republic of Iran has made a strategic mistake in the foreign exchange policy process of following the rates formed in the free smuggling market in determining and adjusting the official rates, as a result, a new wave of general increase in the prices of goods and services has emerged, which has had direct and tangible consequences on the living conditions of different sections of the society and has become the basis for the emergence of serious economic and social inflammations.

In this regard and considering the importance of explaining the causes of recent developments in the field of public livelihood and the necessity of providing effective and applicable solutions to manage the existing conditions, the following points and considerations are mentioned.

A – Analysis of the current situation

One of the fundamental components in investigating the phenomenon of inflation and exchange rate fluctuations is the precise explanation of the cause and effect relationship between exchange rate changes and the general level of prices. Examining the accumulated experience of more than three decades of economic performance of the Islamic Republic of Iran clearly shows that the highest inflation rates have occurred mainly following the increase in exchange rates – both official rates and rates formed in the free market of smuggling. The historical and empirical evidences related to the years 1374, 1390, 1398, 1401 as well as last year significantly confirm the fact that the increase in the exchange rate is one of the main and determining factors in the escalation of inflation and economic instability of the country and its effects are directly reflected in the general livelihood of the society.

In the usual policy procedures, often with the argument that the distance between the official exchange rate and the rates formed in the free market and smuggling is the basis for the creation of rents, the occurrence of corruption and the reduction of incentives for the return of currencies obtained from non-oil exports, decisions related to the increase of the official exchange rate have been taken. Then and following these decisions, the increase in the official exchange rate quickly led to an increase in the general level of prices, especially the price of basic and essential goods, and created a new wave of inflationary pressures in the economy. The continuation of this trend and the intensification of inflation, the stimulation of inflationary expectations among economic activists accelerates the process of replacing the Rial with all kinds of assets, including currency, all kinds of muscats and melted gold, gold-based assets, as well as cryptographic assets. This change in economic behavior, in turn, increases the speculative demand in the free currency smuggling market and fuels the intensification of fluctuations and the regrowth of the exchange rate in this market. In such a situation, the economy of the country and the variable exchange rate are in a more unfavorable situation than before, and the vicious and destructive cycle of “exchange rate – inflation” is reproduced continuously and repeatedly.

In addition, our analytical estimate and forecast of the possible trend of the official exchange rate and the free market rate of smuggling in the coming years – assuming the continuation of the destructive cycle of “exchange rate – inflation” – has also been reflected.

Examining the recent changes in the foreign exchange policy of the Central Bank, especially in the field of management of foreign exchange resulting from non-oil exports, shows that with the increase in the official exchange rate and as a result the growth of the free market rates of smuggling, the behavior of exporters has changed in such a way that with the aim of earning more Rials from each currency unit, their motivation and desire to supply and return export currencies to the official cycle of the economy has decreased 13. The data and figures show that at the same time as the official exchange rate increased in the past years, indicators such as “percentage of overdue foreign exchange obligations fulfilled in relation to total obligations” and also “percentage of non-return of foreign exchange resulting from exports in relation to total exports” have taken an increasing trend; This indicates the inefficiency of the adopted policies and the deepening of the disruption in the currency system of the country.

The removal of the Nima currency and the establishment of a new rate of commercial currency in the form of Hall One of the exchange center in 1403, as well as the creation of Hall Two with a higher rate and closer to the rates formed in the free market of smuggling in this year, have in fact led to the intensification of the increasing trend of the two important indicators mentioned. The data analysis clearly shows that whenever the central bank – either in response to temporary pressures or with the aim of bringing the official rates closer to the free market and smuggling rates – increases the official exchange rate in the form of mechanisms such as the half rate, trading hall one and two and other similar procedures, not only the exchange rate in the free market of smuggling increases more rapidly, but at the same time the share of currencies that have not returned from the official cycle of the economy also increases. takes

Despite the realization of a significant surplus in the country's trade balance of about 35 billion dollars in 1403 – in such a way that the total oil and non-oil exports amounted to 108.5 billion dollars and the volume of imports was about 73.5 billion dollars, and with the absence of a real shortage in the country's foreign exchange resources, unfortunately due to the non-return of a significant part of the currencies from non-oil exports (especially exports made through one-time business cards, granting exemptions Unnecessary and sometimes lacking in economic justification, as well as the adoption of approvals contrary to the legal requirements in the currency return working group), the official exchange rates and the rates formed in the free market of smuggling have faced an increase of more than 50%. The direct consequence of this trend is the proportional and significant decrease in the value of the national currency, the effects of which are directly reflected in the increase in livelihood pressures and the weakening of the country's economic stability.

In addition to the above, based on the available information and data, since the beginning of 2017 (until December 25, 1404), more than 117 billion dollars of foreign exchange from non-oil exports have not returned to the official cycle of the country's economy. This situation has directly caused the formation of long queues and continuous disruptions in the process of currency allocation for the import of production inputs and goods needed by the productive sector. At the same time, unfortunately, under the influence of pressure from the Iranian Chamber of Commerce and also with the stated aim of encouraging exporters to fulfill their foreign exchange obligations and return export currencies, the central bank has continuously increased the official exchange rate; However, as stated earlier, the evidence and practical results indicate that this policy approach in practice has increased currency instability and deepened the existing problems.

B – The wrong address of attributing inflation to the budget deficit and liquidity growth as the main factor

In some analyses, the government budget deficit and liquidity growth are introduced as the main cause of inflation and devaluation of the national currency 22. However, a careful examination of official statistical data and evidence shows that this approach has serious analytical shortcomings and cannot alone explain the inflationary developments of recent years 23. In this context, it is necessary to pay attention to the following important points:

1. According to the information published by the Iranian Statistics Center, the ratio of liquidity to GDP decreased from about 80.6% in 2015 to about 42% in 1403 and estimates indicate that this ratio will reach less than 40% this year. The continuous decrease of this ratio indicates that the growth rate of liquidity in the period under review was lower than the inflation rate and as a result, liquidity as a dominant variable did not play a decisive role in aggravating inflation.

2. According to the monetary and credit statistics of the Central Bank of the Islamic Republic of Iran, in the period from August 1403 to August of this year, the largest share in the growth of the monetary base was allocated to the net foreign assets of the Central Bank and the Central Bank's claims from banks, respectively, and the contribution of these two components to the growth of the monetary base was reported to be about 11.6% and 14.7%, respectively, and is not directly related to the government's budget deficit. The main reason for the increase in the net foreign assets of the Central Bank was the growth of gold reserves to the amount of approximately 8 billion dollars – instead of receiving foreign currency from non-oil exports.

In addition, the increase in the debt of Sepeh and Aida Banks to the central bank is one of the effective factors in the growth of the monetary base. On the other hand, the share in the growth of the central bank's claims from the public sector in the monetary base was negative 4%, which confirms that the government's budget deficit did not play a role in increasing the monetary base in the mentioned period.

In addition to the above, the analysis of the composition of liquidity in terms of factors affecting its supply shows that about 70% of the available liquidity was due to the demands of the banking network from the non-governmental sector in the form of bank facilities; While the net share of the banking network's claims from the public sector is only estimated at 10%. Based on this, the attribution of increased liquidity to the government's budget deficit lacks valid statistical and analytical support, and this statement cannot be confirmed based on official data and information published by the Central Bank of the Islamic Republic of Iran. The main reason for the increase in the demands of the banking network from the non-governmental sector has been the growth of the exchange rate and the subsequent escalation of inflation. The increase in the level of inflation by raising the general level of prices significantly increases the need of production companies as well as consumers for more liquidity in order to maintain the continuity of economic activities and fulfill current obligations.

In other words, in the current conditions of the economy of the Islamic Republic of Iran, the growth of liquidity is mainly the consequence and effect of increasing inflation, and not its primary and fundamental cause 34. Declaring the budget deficit and liquidity as the main source of inflation in the current situation is giving the wrong address to the country's officials. Increasing the salaries of employees and pensioners less than inflation under the pretext of inflation is a wrong policy and livelihood burning, and we must deal with the main root of inflation, i.e. the irregular increase in the exchange rate and the reform of the abandoned floating currency system of the country.

C – Providing a solution to strengthen the national currency and get out of the destructive cycle of exchange rate increase – inflation

In line with the reform of the country's foreign exchange policies, there is a comprehensive proposal to review the short-term and medium-term policies, which is referred to below as a part of the short-term and medium-term policies:

1- Continuation of providing currency at the rate of 28,500 Tomans for basic goods and establishing a smart supply chain monitoring system in order to guarantee the supply of goods at the approved rate to the final consumer.

It is worth noting that contrary to the propaganda and false analyzes published about the 28,500 Toman currency, the documented and reliable data indicate that this exchange rate is directly and effectively dedicated to the provision of basic goods and has played an important role in balancing the livelihood portfolio of households. The information and documents related to this matter are reserved with this group of honorable representatives and will be provided if necessary.

In the current situation, regarding this proposal, there are two main strategies in front of the policy makers:

The first strategy: remove the currency of 28,500 tomans for basic goods and replace it with a special product for the people. Practical experience shows that the removal of this rate will increase inflation and intensify inflationary expectations, and as a result, the presentation of goods definitely cannot compensate for the effect of price increases. As a result, the destructive cycle of exchange rate – inflation is intensified and another preferential rate with a higher level (for example, 70,000 Tomans) will replace the rate of 28,500 Tomans; A trend that will be eliminated in the coming years. The experience of 1401 also confirms that this strategy has failed and has broken the inflation record of the last four decades.

The second strategy: continue to supply 28,500 Tomans through the Central Bank by increasing the monetary base

It should be noted that if the said currency is provided from the foreign assets of the central bank and transferred to the central bank as a debt of the government, the monetary base and money supply will not change and only the composition of the central bank's assets will change 46. Scientific and experimental studies show that both strategies have negative effects on inflation and economic growth, especially if the monetary base increases; However, the negative effects of the second strategy are far less than the first strategy and it can be evaluated as a bad choice over a worse one.

2- Cancellation of Council of Ministers Resolution 1/9/1404 regarding the import of basic goods with origin without currency transfer. The implementation of this resolution, along with increasing the exchange rate in the free market and smuggling, will also destroy the positive effects of the exchange rate of 28,500 tomans on people's livelihoods and table and intensify economic instability.

3- Strengthening the currency governance and promoting the sovereignty of the Rial with the aim of eliminating competitors of the national currency, including foreign currency, muscats, melted gold, encrypted assets and other alternative assets through the strict implementation of the Law on Combating Goods and Currency Smuggling, requiring exporters to return the currency obtained from exports and the strict application of regulations related to money laundering.

4- Approving and implementing the plan to strengthen the national currency and invest in production with the aim of amending the laws and regulations that have connected the domestic economy to the exchange rate and global prices and at the same time strengthening the sovereignty of the Rial. Completion and development of economic databases and the full implementation of Article 169 of the Direct Taxes Reform Law along with the completion of the operation of store terminals and the taxpayer system in order to closely monitor economic activities and strengthen the efficiency of the tax system. Determining and applying the appropriate exchange rate (single rate) in the official economy of the country in order to create transparency and stability in the official markets and prevent false fluctuations.

5- Reducing the bank interest rate and proper pricing of energy carriers including electricity, gasoline, diesel and other energies after the implementation of the above reforms in order to reduce the cost of production and support sustainable economic growth.

Sincerely

A group of representatives of noble people of Iran in the twelfth term of the Islamic Council

Attached: signatures of 165 representatives of noble people of Iran