Iran is launching their own centralized central bank backed cryptocurrency. Essentially Iran wants to build their own cryptocurrency which will be the Iranian version of the Swift Network. Let’s break down on why Iran is deciding to launch the Iranian Digital Rial, What the implications are, Who’s involved and Why it matters?
Iran has basically been shut out of the global financial system. Iran is essentially trying to get ever closer to some kind of a workaround to USA sanctions. The big blow to Iran’s economy came back in November when some of its banks were actually barred from the Swift Network which is a devastating situation for any country. Any country which is excluded from the Swift Network cannot pay for things like imports or receive payments for exports.
Sanctions are the classic form for financial censorship. In terms of an economic weapon, it doesn’t get more serious than sanctions. Basically, they are the number one financial weapon in the world. You can agree or disagree with the politics of Iran. There are people out there who have very strong opinions about Iran being a bad country but when it comes down to it, international politics are incredibly hypocritical. Cutting Iran out of the international financial system is a serious power move by the more powerful countries.
The important thing to note here is that this is all coming from one place: Washington. Countries like Germany are tired of being told that who they can and cannot be friends with or can and cannot do business with. Its crazy to think that how a powerful third party can intervene in two countries trying to do business together. And of course, the US administration has warned that there will be severe penalties for any companies who are trying to evade the imposed sanctions. So if you are a German company and you do business with Iran then you are going to be strictly punished by Washington for the transactions they had nothing to do with. This makes the use case for cryptocurrencies very clear. In the same way, we saw the Venezuelan Petro being sanctioned, we are going to see the Iranian digital rial also being sanctioned because no one is allowed to challenge American supremacy, American corporate profits or the Petrodollar. It is a tired international order that we are currently living in and most countries are sick of it, therefore they are looking for alternative regimes to things like the Swift Network.
Iran’s cryptocurrency is expected to be rolled out in phases. First as a Rial backed digital token which will be mainly focused on facilitating payments between Iranian banks and other Iranian institutions active in the cryptocurrency space.
Later, it could be seen as an instrument for the Iranian public to actually pay for local goods are services.
It would not directly facilitate payments between Iran and other countries. That is the initial plan anyway for the Iranian Digital Rial.
So in terms of getting around sanctions, not immediately there with their initial plans for this cryptocurrency but it could definitely lay the groundwork for the blockchain based international payments system that could emerge as an alternative to Swift because an alternative to Swift is definitely needed and that is the market that XRP is focusing on.
Whether or not XRP will play along with the sanction games when it comes to these kinds of things remains to be seen but because of sanctions, no matter what happens with the Iranian Digital Rial, it can be very much assured that it won’t be hitting any credible international exchanges due to the sanctions regime. We have already seen some cryptocurrency exchanges saying that they are shutting down operations inside of Iran because of US pressure or simple fear of US backlash.
Decentralized peer-to-peer finance could definitely be the way here. Things like localbitcoins or Paxful could be great markets for people in Iran to access real permissionless censorship resistant money because we have to remember that this is going to be controlled by the central bank of Iran and it’s going to be built on a private blockchain. So in terms of fitting all of the other things we would like to see happening with the cryptocurrency, it doesn’t really meet those standards but there are a lot of people who are interested in seeing the Iranian Digital Rial become a reality.
Currently, the reports say that Iran is negotiating with eight countries to carry out financial transactions in the cryptocurrency. So it would be on a trial period before we actually see real international settlements happening in it but to see the trials happening are pretty cool. The ability to circumvent sanctions is a very powerful use-case of cryptocurrencies.
The countries that they are currently talking to are Switzerland, South Africa, France, United Kingdom, Russia, Austria, Germany, and Bosnia. Russia is also reportedly considering launching a Eurasian Economic Union backed digital currency which might be similar to what we are seeing happening with the Iranian Digital Rial. This is supported by Belarus, Kazakhstan, Armenia, and Kyrgyzstan. Also, Iran did sign a trilateral blockchain cooperation agreement with Russia and Armenia.
Now in terms of figuring out what is going to happen here, we see the central banks saying that it may not be used for international settlements, then on the other side, we have them exploring international settlements. The circumstances say that it is going to be used for international settlements and they don’t want to announce it yet.
Russian president Vladimir Putin working with partners to establish financial systems that are fully independent of Swift. And of course, the US does not want this to happen. We saw the blocking Iranian Illicit Finance Act introduced back in December essentially pre-sanctioning Iran’s upcoming cryptocurrency.
Most of us would think that bitcoin would surely be the better solution to the current situation in Iran but the governments have to control the money supply and they have to look over everyone’s shoulder and Iran is no exception to that. Obviously, Iran wants to control how their citizens are spending their money, where they are spending it, who they are sending it to and if they are sending it abroad.
In fact, Iran came out as being quite anti-bitcoin last year specifically because they are worried about capital flight, about people cashing their money into bitcoin and sending it overseas. So that’s why they made it very difficult for people to buy bitcoin inside of Iran.
But the mood seems to be softening. The central bank of Iran, just a few days back has recognized and authorized global cryptocurrencies including bitcoin. They are also looking at how to authorize things like ICO, tokens, cryptocurrency wallets and cryptocurrency exchanges. The new proposal being put forward by the Central Bank of Iran are going to be coming out in the near future and when they do come out, they are going to nullify last year’s blanket ban on bitcoin but the Central Bank did come out saying that using global cryptocurrencies as methods of payment inside the country is prohibited. Their government is also talking about limiting the number of cryptocurrencies that people can hold. Currently, they are prohibited from holding more than 10,000 euros, so we might see a situation where people are prohibited from holding 2 or 3 bitcoins.
What are your thoughts on the Iranian Digital Rial? Tell us in the comments section below.
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