As more countries are coming to terms with the concept of cryptocurrency, there are many governments producing their own coins to have some kind of standing in the industry. One of the latest to create a coin with the local currency is a stablecoin in Iran. The country has decided that their new crypto asset will be backed by rial, according to reports from Al Jazeera.
Much of the purpose of this stablecoin seems to be a reaction to the blockage that Iran faces as it is blocked from the global financial systems at the moment. However, the US sanctions will not prevent them from launching this token, luckily. The intentions of launching a cryptocurrency of this nature were actually announced in the summer of 2018, coinciding with the Trump administration’s decision to prevent interactions with Iran as a result of their alleged “malign activities”.
Still, the most significant action that threatened the economy of Iran was in November, as select bank were no longer allowed to participate in SWIFT. SWIFT makes it possible to process cross-border payments through a global messaging system in Belgium. Without having the option of participating in SWIFT, countries are unable to pay for any imports and have no way of being paid for exports, leaving them on their own to drown in financial difficulty or find another option to pay and be paid.
The new stablecoin will not be rolled out all at once but in phases. The first phase will be as a rial-backed digital token. This launch will make it possible for Iranian banks and institutions to have an active role in cryptocurrency, which will later help the public pay for goods and services in the country. Though it will not make it possible for Iran to participate in the payment process of imports and exports, it could set up the necessary framework for a blockchain-based payment system that could turn into an international alternative to SWIFT.
So far, there has yet to be a confirmation between Iran and other nearby nations of if they plan to participate, or if there will be any actual results from these efforts. However, there have been several developments that offer some idea of where the countries are going from now. The second set of US sanctions against Iran were put into effect on November 5th. On that day, Abdolnasser Hemmtai, the Governor of the Central Bank of Iran, had stated that the regulators locally had already begun the work on the alternative, preparing for their ban from the SWIFT payment system.
About nine days later, Iran signed an agreement between themselves, Russia, and Armenia for a blockchain cooperation project. The signatory of Russia, Yuri Pripachkin, said, “According to our information, active development of an Iranian version of SWIFT is currently underway,” confirming the statements of Hemmtai. No partner countries have specifically been named yet, though the longstanding connection between Tehran and Moscow suggests that they would collaborate to overcome the struggles that the US sanctions causes.
Both Saudi Arabia and the United Arab Emirates, rivals of Iran in the region, have chosen to launch a joint cryptocurrency. It is possible that Iran could take a similar route. The introduction of a digital rial could come with some benefits, considering that the central bank cryptocurrencies (CBCCs) are not meant to actually replace the other cryptocurrencies on the market, according to crypto and blockchain developer Yashar Rashedi.
“They certainly can’t replace the likes of bitcoin due to their centralized nature, but their existence is harmless. Even as CBCCs may never find widespread everyday use among the general public, they may be able to offer some new features to startups and developers that had to work with centralized bank APIs before them”.
Even though Iran had officially issued a blanket ban on financial institutions and their interactions with cryptocurrency in April, they have since changed their stance, and are working to integrate blockchain. At the time, the move was believed to have been a way to prevent the loss of value to the rial.
With the new regulations established in Iran, cryptocurrency “mining” may soon emerge, and there could even be licensing for crypto exchanges to function. The framework is planned to be made public by late March, which is the end of the Iranian year. Still, these state-backed cryptocurrencies are not exactly what the original creators of the industry planned when they developed Bitcoin. Bitcoin, after all, isn’t controlled by any entity and offers anonymity, while the country’s stablecoin will be controlled by the Iranian central bank and built upon a non-minable blockchain infrastructure.
This is not the first time a bank decided to take on a stablecoin to help revive their economy. A perfect example is Venezuela, who launched the Petro last year, allegedly backed by the oil reserves of the country. As a result, the Trump administration wasted no time in banning trade with the Petro. Still, the enthusiasts of crypto in the area believe that encouraging blockchain could be a positive decision for the country.
Millennial blockchain entrepreneur Amir Habibzadeh said,
“It will create the possibility of tokenising things and may increasingly bring the general public into the fold in terms of online exchange of money, something that will end up to the benefit of entrepreneurs.” Continuing,
“On the other hand, moving toward blockchain-based transactions will ultimately mean real-time clearance and will open up possibilities for replacing the incumbent SHETAB interbank payment system with a blockchain-enabled alternative.”
A neuropsychologist that wants to create a crowdfunding platform with blockchain, Soroush Hakimi, stated, “I'm very hopeful about the future,” speaking to Al Jazeera. He added, “Startups working in this field have established a good benchmark while research groups and blockchain labs at universities have significantly grown, so I see both the government and academia honing in on blockchain technologies.
Additional details to be made available on Tuesday next week at the Electronic Banking and Payment Systems conference. The theme this year is the blockchain revolution.