Exchange rate stability and lack of money creation should be considered by the government

According to the IBNA correspondent, according to the government, next year’s priorities will be to improve the economic conditions of inflation control, prevent price increases and improve the welfare of the people, but to achieve these goals, what policy should the government take to change it by the people? Touch?

Vahid Mahmoudi, an economics expert and university professor, told IBNA about this issue: “The mentioned goal is not a new issue and usually the government raises it in some way for all years.” According to Desotto, a well-known Peruvian economist, if the government has a task, it is to reduce the cost of exchange. Transaction costs are costs that are incurred outside the firm and are not controlled by management. In other words, it is the costs that are imposed on the domestic economy by environmental conditions, including political, international and domestic areas. So the greater the economic stability and political stability, the lower the exchange rate.

He added: “In addition, it should be noted that the most important task of the government is to reduce the cost of trade and inflation, so reducing inflation should be one of the priorities.” However, by examining the roots of inflation, we find that the main root is the growth of liquidity, and in the current situation, this issue has plagued the supply and demand side. In addition, the root cause of inflation, at least in the last year or two, has been exchange rate instability, which the government must be able to control in the first place.

“Although it is suggested that tradable goods are more affected by the exchange rate, the structure and nature of the country’s economy is such that both tradable and non-tradable goods are affected by the exchange rate,” he said. Are located. In this sense, the economic environment of the country is completely dollarized, and as a rule, such an environment will be inflationary, which according to the monthly announcement is about 25 percent. If the government is to take action in these areas, it must recognize the roots of money creation in the economy, deal with them, and take control of the currency.

Mahmoudi added: “Currency and money are produced more in the banking network and banks, especially commercial ones, create unproductive money, which increases the liquidity in the economy and raises inflation along with exchange rate fluctuations.” The university professor said: “The goals mentioned by the government are good, but there is a bit of complexity in this area because the country’s economy is in a state of stagflation, which must be controlled in any case to get out of the state of stagnation.” To do this, we need a carefully studied package so that economic growth movements to control inflation do not lead to a reduction in the recession.

Regarding the policies that need to be changed in this regard, he said: “There is no clear policy package in this regard, so although there is talk in the government, but there is no will to control it.” The budget assumes that the exchange rate will be halved and oil exports will be sold at around 2.5 million barrels per day, which is not in line with the economic realities of our country unless serious political decisions are made in the international arena. After the US election, it was observed that the market floor tends to lower the exchange rate. We understand the government’s considerations, but this issue, which is in conflict with the policies and packages of the declaration, can not be considered far-sighted.