The Impacts and Consequences of Rising Money Supply | Hamid Safaei Niko | TEDxTous

Quick Overview

The presentation concludes that the increase in money supply, driven by credit creation from banks and government financing, has led to inflation and a decrease in the real value of money, emphasizing that the government must take measures to reduce money supply growth through fiscal discipline rather than relying on monetary tools like increasing the discount rate or selling bonds.

Key Points: The money supply in Iran, particularly the M2 definition, has seen significant growth, with the money multiplier (or inflation multiplier) being a key driver. The growth in money supply has resulted in inflation, decreasing the purchasing power of the people, which is shown by the fact that 11.5 thousand billion Tomans are now needed to buy what 1.15 thousand billion Tomans bought previously. The composition of money supply is shifting, with currency (cash and coin) in circulation decreasing relative to total money, and bank deposits decreasing relative to the increase in the money multiplier. The speaker points out that the government relies heavily on borrowing from the Central Bank (which creates base money) to finance its deficits, leading to high inflation, while gold and foreign currency assets held by the Central Bank have been decreasing. Key recommendations for reducing money supply growth include increasing the discount rate, selling Central Bank bonds, limiting government borrowing, reforming subsidy payments, and ensuring government fiscal discipline. The current situation, where people hold less physical cash and more bank deposits, is creating a paradox where the public's confidence in the currency is eroded, leading to increased demand for real assets like gold.

Context: Hamid Safaei Niko delivers a TEDx talk titled "From Ancient Roots to Future Minds" focusing on monetary economics, specifically analyzing the impacts and consequences of rising money supply in the Iranian economy. The speaker uses charts and economic definitions to explain concepts like the money multiplier, base money, and the relationship between money creation and inflation, concluding with policy recommendations for fiscal control.