Iran Making Progress Towards Launching State-Backed Cryptocurrency
“…Iran is exploring the possibility of allowing Iranians to use the digital currency to complete consumer transactions.”
By Block Society
Iranian Rial backed Crypto on the Horizon?
The severe financial costs imposed by international economic sanctions, coupled with multiple Iranian banks becoming disbarred from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) in November, has led Iran to push towards issuing a state-backed cryptocurrency1.
SWIFT is an international payment transfer service whose messaging system is used by over 11,000 banks worldwide2. Iran’s exclusion from the SWIFT system has resulted in the country having extreme difficulty making and receiving payments for imports and exports and transferring money across the Iranian border. The move was in response to United States President Donald Trump announcing sanctions against over fifty Iranian banks on November 5, 2018. Iran was previously excluded from SWIFT during President Obama’s administration and has yet to fully recover from the economic damage.
Iran reached an agreement to support blockchain development with Russia and Armenia on November 14, 2018 during the ChainPoint 18 conference and plans to slowly implement its own cryptocurrency, with the initial phase allowing transfers between Iranian banks and institutions.
“Iran’s commitment to create a Rial backed cryptocurrency dates to early 2018.”
In the long term, Iran is exploring the possibility of allowing Iranians to use the digital currency to complete consumer transactions. The hope is that, while there are no current plans to partner with foreign countries to accept Iran’s state-backed cryptocurrency, Iran can eventually join a blockchain based international cryptocurrency payment system.
Iran’s state-backed cryptocurrency would be regulated by the central bank and utilize a private blockchain. The digital asset will not be able to be mined and would be backed by Iran’s Rial fiat currency.
Iran’s commitment to create a Rial backed cryptocurrency dates to early 2018, when Iran was anticipating a new set of harsh economic sanctions and correlated with Iran banning domestic banks from engaging in cryptocurrency to prevent a mass exodus of funds from Iran. Iranian students attending college abroad, especially in the United Kingdom, have turned to Bitcoin in order to pay tuition3. The sanctions imposed upon Iran have made it difficult for university students to pay their tuition because of the near impossibility of transferring money out of Iran and inability to open bank accounts in the UK. The unintended impact of the sanctions on ordinary Iranians has opened the door for the nation to begin embracing blockchain and cryptocurrency.
In response to the difficulties, mining Bitcoin has become embraced in Iran and is now treated as an industry by the government4. Bitcoin is likewise trading more than 200% higher in Iran than other regions of the world because of the ability to complete international transfers and payments and the diminishing value of the Iranian Rial.
Overall, Middle Eastern countries are beginning to support blockchain and cryptocurrency innovation. Last month, the United Arab Emirates and Saudi Arabia announced a bilateral agreement5 to create a cross border cryptocurrency that could be used exclusively in the two nations.
Additionally, three cryptocurrency tokens, MenaPay (USD based stable coin), OneGram (gold based stable coin) and Arabcoin, are attempting to offer digital currency to the Middle Eastern region.
While the application of blockchain has the potential to create a financial system outside the jurisdiction of international regulations and United Nations sanctions, it can also help those in regions that lack access to traditional banking infrastructure and help expand the market for cryptocurrency in regions that have yet to support mass adopt the technology.
2. Eavis, P. 05 November 2018. “Important European Financial Firm Bows to Trump’s Iran Sanctions”. https://www.nytimes.com/2018/11/05/business/dealbook/swift-iran-sanctions.html. Accesed 27 January 2019.
3. Townsend, M. 15 December 2018. “UK University tells Iranian Student: Go Home and Get Tuition Fees in Cash”. https://www.theguardian.com/education/2018/dec/15/uk-universitity-tells-iranin-student-pay-tuition-fees-in-cash-trump-sanctions. Accessed 27 January 2019.
4. Motamedi, M. 17 December 2018. “Thanks to US Sanctions, Iranians are Turning to Bitcoin Mining”. https://www.atlanticcouncil.org/blogs/iransource/thanks-to-sanctions-iranians-are-turning-to-bitcoin-mining. Accessed 27 November 2019.
5. THE MEDIA LINE. 14 December 2018. “Saudi Arabia and UAE to Launch Cross-Border Cryptocurrency”. https://www.jpost.com/Middle-East/Saudi-Arabia-and-UAE-To-Launch-Cross-Border-Cryptocurrency-574341. Accessed 27 January 2019.