Iran is exploring the use of cryptocurrencies as a means to work around international sanctions that inhibit trade with other countries.
A major benefit of Bitcoin and cryptocurrencies is the ability to send funds across the world far quicker than through conventional methods.
This allows people to bypass traditional foreign exchanges and international bank transfers, that can takes days or weeks to process the transfer of funds between countries.
It also offers a solution to millions of people that live in countries that are affected by international sanctions. The likes of Iran have had to endure the consequences of economic isolation for years, which affects the day to day lives of its citizens.
In 2015, Iran had economic sanctions lifted after the country agreed to dial down its nuclear programme to meet standards set out by International Atomic Energy Agency (IAEA).
Before this, the country was separated from the international banking system through a ban from using SWIFT - the network used by financial systems to send and receive and track transactions.
The 2015 lift on sanctions offered Iran a slight reprieve after years of being shut out by the global economy on numerous fronts.
The ability to use cryptocurrency to move money out of the country has already been noted in Iran. Iranian Parliamentary Commission for Economic Affairs chairman Mohammad Reza Pourebrahimi says citizens have moved $2.5 bln out of the country in cryptocurrency.
Clamp down on virtual currencies by Iran’s central bank
That was a driving factor in Iran’s central bank decision to prohibit domestic banks and financial institutions from dealing with cryptocurrencies.
As quoted by Bloomberg, the Iranian Central Bank has drawn a clear line in the sand, with concerns of money laundering through the use of cryptocurrencies:
“All branches of banks, credit institutions and currency exchanges should stay clear of any sale or purchase of these currencies and avoid undertakings that facilitate or promote such currencies. Action will be taken against those who contravene the regulations.”
The move has also been led by government efforts to unify the rules and regulations of its currency markets and rates - due to a slide in the value of Iran’s national currency, the rial.
This has come to a head after US president Donald Trump announced that America would withdraw from the Iranian nuclear deal that was brokered back in 2015.
That deal originally saw Iran agree to taper down its nuclear programme and allow more international inspections.
In February, the IAEA had said that Iran was still in compliance with the deal, as reported by the Independent. Nevertheless Trump’s announcement means that the country could see long-standing sanctions return in July.
Iran developing experimental cryptocurrency
In a strange turn of events, and despite the central bank ban on cryptocurrency trading, Iran’s Information and Communications Technology (ICT) minister Mohammad Javad Azari-Jahromi announced at the end of April that an experimental model of a state-run cryptocurrency was ready.
The Iranian virtual currency has been developed by the ICT ministry and the Iranian central bank. The idea was presented by Azari-Jahromi in February:
“In a meeting with the board of directors of Post Bank on digital currencies based on the blockchain, I prescribed measures to implement the country's first cloud-based digital currency.”
Azari-Jahromi says the central bank ban does not apply to the new cryptocurrency.
Iran and Russia in discussions
In the wake of Trump’s decision to pull of the Iran nuclear deal, Iran and Russia are believed to be considering the use of cryptocurrencies as a means to deal with US economic sanctions that cut off the use of the SWIFT transfer system.
Pourebrahimi confirmed that the Iranian central bank had been engaged to develop proposals for the use of cryptocurrencies between the two countries, and that the countries were aligned:
“They [Russia] share our opinion. We said that if we manage to move this work forward, then we will be the first countries that use cryptocurrency in the exchange of goods.”
Thoughts from Iran
The geopolitical situation surrounding Iran is out of the hands of the common man on the street, yet Iranian people have managed to stay tech savvy over the years.
Arame Bandari, a researcher at Iran Blockchain Labs, told Cointelegraph that despite the imposition of tough international sanctions, his compatriots have kept up with the rest of the world:
“As you know, Iran has faced various type of sanctions during last 40 years, but you should consider that Iranian young educated population is always adapted with the latest technological developments.”
Nevertheless Bandari concedes that the environment has made life difficult for research and development. This has been curtailed somewhat by the Iranian government’s willingness to nurture education and tech development:
“During last 5 years, we have witnessed a lot of good governmental supports toward knowledge-base economy and we've observed that a plenty of knowledge/technology-based SMEs [small to medium enterprises] have flourished.”
According to the researcher, there is a health startup ecosystem established in the Iranian capital Tehran, as well as Esfahan and Shiraz. This has led to the construction and establishment of technology parks, incubators, crowdfunding platforms and business accelerators - ‘paving the way for the implementation of a technology/knowledge based economy’.
Bandari also believes that it could well be possible for Iran to use cryptocurrencies to facilitate trade with countries like Russia.
However, he also emphasized the recent government crack down on the use of cryptocurrencies has been tough. The exit of a huge volume of rials forced the Iranian government’s hand, and Bandari said exchange platforms would shut down services in the weeks ahead.
An outsider’s perspective
European University at Saint-Petersburg senior lecturer of political economy Nikolay Kozhanov, expert on Iranian external affairs, spoke to Cointelegraph about the geopolitical possibilities of the use of cryptocurrencies between the two countries.
Kozhanov said Iran is considering the use of cryptocurrencies to bypass sanctions, in direct reaction to the possibility of having old sanctions restored and being cut off from the SWIFT system:
“They’re looking at options to bypass these sanctions. Previously, they tried to establish direct bank connections using local currencies as payment options but the problem is that you’re taking out preferred currencies like the euro and the dollar out of these exchanges.”
“The exporters of products are losing money because they’re usually playing on the difference between exchange rates between currencies. Some officials in the Iranian government and the central bank are of the understanding that cryptocurrencies could be a solution.”
Kozhanov said the fact that the countries had opened discussions of using cryptocurrencies for bilateral trade and investment between Russia and Iran ‘means they’re quite serious about it.’
The burning question is if and when the two countries could adopt cryptocurrencies as a means to facilitate trade. As Kozhanov explains, it’s not an easy prediction to make.
“To be honest I’m not sure, first of all it’s going to be first experience of using cryptocurrencies to facilitate trade. Iran hasn’t done it before so to a certain extent, it’s an experiment. Secondly the decision has not even been taken yet in Iran itself.”
Another mitigating factor is the complex relationship between the Iranian government and Islamic law:
“Iran is governed in accordance with Islamic laws, which heavily regulate the banking sphere. In general Islamic economists ban everything that is not created by work.You cannot make ‘profit out of thin air’. To my understanding, to a certain extent cryptocurrencies fall into that category.”
A decision that cannot be rushed
It seems highly unlikely that Iran will be rushed into using cryptocurrencies on a national and international scale. There are too many working parts to be ironed out, and some highly complex relationships between the government and central bank as well as the application of Islamic laws.
However, should fresh sanctions be imposed once again, cryptocurrencies could well open up new possibilities for the country and its place in the global economy.