News ID: 168075
Published: 0656 GMT September 03, 2016

Pivotal role of money market

Pivotal role of money market

By Hadi Haqshenas

An economy comprises four markets namely labor, commodity, capital and money markets.

The most important is the money market which can be likened to blood in the human body. If the blood is healthy and standard, it will help the proper functioning of all  body parts and will provide sufficient energy to them.

The money market plays the same role in the economy. It includes a number of indices, such as the inflation rate and the interest rate. Standard money indices positively influence other markets.

For instance, if the interest rate on bank deposits was close to one percent, no one would ever deposit money in banks to receive an interest. As a result, the money would be channeled into investment to ensure economic prosperity.

Hence, in order to cut interest rates on bank deposits, efforts must be made to lower the inflation rate. Whenever inflation goes up, people divert their money to 'non-conventional economic activities' rather than invest in markets which augment the economy. Engagement in arbitrage is among such activities which wreak havoc on the economy.

Before President Hassan Rouhani took office in August 2013, Iran's economy had plunged into disarray as a result of galloping inflation. The national economy had to bear the brunt of runaway inflation, which had provided an opportunity for dealers and profiteers to fish in troubled waters.

The Rouhani government has managed to reverse this trend and contain the spiraling inflation. The incumbent administration has brought the inflation rate down to a single-digit for the first time in a quarter century whereas the figure was over 30 percent under the former government (2005-2013).

This is among the outstanding achievements of the Rouhani administration in the past three years, which must be preserved.

Meanwhile, Iran's banking system needs amendments to boost the national economy. The current low inflation rate indicates that the Central Bank of Iran and other relevant bodies have been pursuing positive approaches to overhaul the system.

Nowadays, international banks are rapidly developing the electronic banking system to minimize expenditures. This is while, some Iranian banks erect massive buildings to promote their activities.

Fortunately the electronic banking system has expanded in Iran. In order to boost the system, efforts must be focused on expanding it rather than put up attractive buildings.

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