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How rial's devaluation may boost Iranian economy

Excess liquidity in search of higher returns may be causing turmoil in Iran’s foreign exchange, property and gold coin markets, but the money is primed to positively impact capital markets.

The money supply in the Iranian economy exceeds $355 billion at the official exchange rate, remarkably surpassing total economic output of $331 billion. Financial depth, a metric showing the ratio of liquidity to gross domestic product, is commonly indicative of the state of a given economy. But financial depth can be too high; the rapid growth of this ratio in Iran, which has seen it triple under the administration of President Hassan Rouhani, is now posing a threat to the overall economic health of the country.

Weak monetary, fiscal and exchange rate policies in recent years coupled with the payment of high interest rates to Iranian bank depositors have all acted to cause the liquidity rate to spike to levels that have spurred dramatic growth in asset markets such as hard currency, gold coins and real estate. Iranian stock exchanges have been the only markets that have been neglected by investors, even as the fundamentals in the Tehran Stock Exchange tell of rosy days to come.

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