The Story so far
Iran has been known to consistently struggle with segregation from global payment systems, limitations on its nuclear programme and oil export, due to the United States sanctions over the years. The situation worsened recently after the re-imposed U.S. sanctions forced Iran to engage in traditional banking. SWIFT banned major Iranian banks from gaining access to its largely used cross-border payment services. The severe economic sanctions imposed by the US were solely induced to obstruct any form of trade with Iran. As a result, the country’s financial system has become hampered. The Rial took a downward spiral, falling from 36,000 rials per dollar to 60,000 rials per dollar from September 2017 – April 2018.
Iran & Cryptocurrencies: The Status Quo
Prior to this, the Central Bank of Iran (CBI) banned Iranian banks from handling cryptocurrency. But with the prevalent economic war on the country, Iran is making attempts to leverage on cryptocurrency as a solution to the falling value of its currency. Following the lifting of the ban on cryptocurrency, Iran took bold steps to use cryptocurrency in reversing the negative effects of the US economic sanctions. In late January, the Central Bank of Iran (CBI) proposed a draft of its regulations and guidelines on cryptocurrency, dubbing it the ‘Version 0.0′ Framework.
Iran & Cryptocurrencies: The New Approach
The new framework is to substitute the blanket ban on cryptocurrency that was imposed in April 2018, during the early days of its currency crisis. Iran is relaxing its stand on cryptocurrency not only to evade economic sanctions, but also in respect of sensitive rules on foreign currencies. The country is taking steps to find alternatives to traditional banking by exploring an entirely different economic path (Cryptocurrency). With this draft, the CBI aspires to organize and outline the extent to which continuous crypto operations can be encouraged in the country and also enable traders set their goals for the future.
Although, the draft regulatory framework recognizes the importance of the cryptocurrency market, there still exists the imposition of restriction on the use of virtual currency.
Features of Version 0.0 Framework
The Version 0.0 Draft recognizes and recommends bitcoin, initial coin offerings, tokens, cryptocurrency wallets, cryptocurrency exchange bureaus and even mining cryptocurrencies.
Authorities are to establish anti-money laundering initiatives to fight against the financing of terrorism with cryptocurrencies. However, every cryptocurrency must be pegged to the Rial. The digital tokens can only be utilized by banks or for other domestic transactions if they are backed by the rial. Tokens that are not backed by the national currency, the rial, cannot be operated as modes of payment. Iranians are also barred from holding large amounts of global cryptocurrencies- specifically more than 10,000 euros is prohibited. If substantial amounts of money are put in crypto, it would affect the economy adversely.
The most consequential part of the proposed draft is the prohibition of global cryptocurrencies as methods of payment inside the country, to prevent greater value loss of the rial. The ban on using global cryptos as methods of payment in the Islamic Republic has raised lots of unsatisfied reactions from the country’s crypto community.
The Pro’s and Cons of the Proposed Framework
The CBI’s proposed draft had been regarded by most Iranians in the community as an inadequate regulatory framework that stands to obstruct people intending to develop valuable projects. Meanwhile, the Central Bank of Iran (CBI) stated that the ‘Version 0.0’ Framework is open to changes and feedbacks from the crypto community, and promises to review the framework to make it better. However, it would be advisable not to delay the decisions to be made on the regulations for cryptocurrencies. If the imposed restrictions on the use of digital currencies are relaxed, the country’s businesses and individuals can utilize them more assertively and with better clarity. Delaying the review of these limitations will only do more damage to Iran’s banking system and its national interests. In short, it is essential to properly establish clearly stated regulations for the use of digital currencies in due time.
The CBI’s proposed framework cannot be regarded as the best solution to Iran’s economic crisis. It is however the safest decision at the moment. With the pressure faced by the government from US reimposed sanctions and the adverse effects it attracts, the CBI can only make efforts to ensure the value of the native currency is preserved – which might possibly require the support of the cryptocurrency market.
Permitting different internationally accepted cryptocurrencies as payment methods in the country at this period could affect the Rial negatively. It could discourage chances of introducing cryptocurrencies that can meet the need for appropriate, solid and lasting solutions in Iran. For instance, some global cryptocurrencies are closely linked to the U. S. Dollar alone. This might benefit businesses and affluent citizens who will earn great amounts of cryptocurrencies, while average-income earners, still paid in Rials, would have diminishing meager wages.
On the other hand, the draft framework can be seen as a step forward. It implies that Iran concedes to the significant prevalence of cryptocurrency in the world today. Iranians are increasingly making transactions with cryptocurrencies around the world at an estimate of $10million worth of bitcoin daily; whether restricted or not. Cryptocurrency could be the new wave of the future at this point. Therefore, it will be unproductive to confine its use.
Iranian officials are actively working to generate sustainable plans that could boost Rial’s worth and the economy itself. Iran has been negotiating with eight other countries to introduce cryptocurrency into international financial transactions and its financial system. The eight countries are South Africa, Switzerland, UK, Russia, France, Austria, Germany and Bosnia. Talks have been ongoing since Iranian banks were barred from the SWIFT financial messaging services. The Islamic Republic believes its collaboration with these countries would be a massive move forward to facilitating transactions that would be independent of SWIFT.
Collaborating with other Countries
Iran is planning to develop a state-backed cryptocurrency – the ‘Crypto-Rial’. The Crypto-Rial will be used to make payments between institutions and banks that have made investments in the virtual currency. But, it is not clear yet whether the Crypto-Rial will serve as the legal tender for the country.
The Central Bank of Iran (CBI) aims to achieve the adoption of this national virtual currency that could potentially displace the U. S. dollars and then stabilize Iran’s financial status in the light of U. S. sanctions. The lifting of the ban on cryptocurrency unfolds better opportunities for taking up blockchain technology and cryptocurrency. Therefore, the embracing of blockchain technology and a sovereign cryptocurrency will introduce Iran to blockchain-based payment networks, which may even turn the traditional SWIFT network outdated.
How are other countries using Cryptocurrencies
Russia is also alleged to be looking into the creation of financial systems that will not be dependent on the SWIFT network. Venezuela has developed an oil-backed cryptocurrency, the Petro, to boost its economy and bypass US and EU restrictions. Venezuela has however, not been able to succeed with the drop in sale prices for its oil and low demand from global markets. This leaves the success of Iran’s intended government-issued cryptocurrency on a probability scale. For more about how countries are using cryptocurrencies, read this article by Abolarin Muhammad, “Cryptocurrencies: How different Countries Regulate them”
Takeaways for Nigeria
In the midst of these contentions, the main takeaway for countries like Nigeria should be how to democratize its economy with the new opportunities cryptocurrency provides. Nigeria has been failed by conventional money over and over again. The government needs to start paying attention to cryptocurrency by backing it up with proper regulations for a start.