As payment methods continue to evolve, new innovations are improving financial infrastructures that have been in use for years. Currently, central ban
As payment methods continue to evolve, new innovations are improving financial infrastructures that have been in use for years. Currently, central bank digital currencies (CBDCs) are a topic that has grabbed the attention of many nations worldwide including the Islamic Republic of Iran.
The Middle Eastern nation has faced considerable economic and financial hardships due to sanctions imposed on it by the United States and believes that piloting a CBDC can resolve problems associated with the blockade.
Furthermore, some view a CBDC as a potential solution to the country’s perceived corruption problem.
Corruption allegations have trailed Iran for decades. The Corruption Perception Index published by Transparency International in 2020 had scored Iran 25 out of 100. Among those indicted in corruption allegations are high-profile government officials including top judges and a parliament speaker who have been recently jailed.
The path to a CBDC
In 2018, Iran began its journey to digitalizing its currency when the Central Bank of Iran (CBI) directed the Informatics Services Corporation, an executive arm of the central bank concerned with payment and automation services, to build a CBDC.
Local media outlet Ilna reported in January that the Deputy Governor for Information Technology at the CBI, Mehran Moharamian, said that CBDC development is expected to start soon. However, he declined to provide any exact dates for the pilot.
There are reports that the Iranian CBDC was developed with the Hyperledger Fabric protocol hosted by the Linux Foundation, but these reports are unconfirmed by either Hyperledger or the central bank.
Ehsan Ghazizadeh, CEO of a local cryptocurrency exchange called Exchange Iran (EXIR), told Cointelegraph that “there is no specific technical data about the Iranian Central Bank’s digital currency.” He added that, so far, the government has not informed anyone about the infrastructure, potential supervisors, the official white paper and/or the number of issuers.
Ghazizadeh said that the government’s target audience and market are still not verified and it’s not clear how the CBDC will be available for public use. “Our knowledge of the matter is, in fact, general,” he stated, “But, it seems the pilot version might take over a year to be realized. The closer the day, the more information will be provided.”
Iran is crypto-friendly, but power concerns block progress
Iran was one of the first countries to legalize Bitcoin (BTC) mining to reduce the financial burden that was crippling the country. But, as blackouts persisted as a result of historic droughts and crippling sanctions, the government was left with no choice but to temporarily halt mining activities.
“The Energy Ministry has been implementing measures since last month to reduce the use of liquid fuels in power plants including cutting licensed crypto farms’ power supply, turning off lampposts in less risky areas and stringent supervision of consumption,” Mostafa Rajabi Mashhadi, the deputy managing director of National Grid Dispatching, had announced in December of last year.
Championing international trade with crypto
At the beginning of 2020, Iran issued 1,000 crypto mining licenses as local officials realized crypto’s potential to aid the geopolitically isolated country in international trade.
Amir Hossein Saeedi Naeini, a member of the Trade Union and Computer Organization, said in January 2020 that “today’s situation in the country is very special and we need foreign exchange earnings; In this situation, the mining and digital currency extraction industry, while importing foreign currency, can facilitate trade…”
With cryptocurrencies proving to be quite useful in fostering international trade, Iran recently expressed interest in tapping into this potential. Last month, the Central Bank of Iran and the Ministry of Trade both agreed to link the central bank’s payment portal to a trading system that allows businesses to use digital assets to settle payments.
According to Mehr News Agency, Iran’s Deputy Minister of Trade and Development, Alireza Peyman-Pak, who also heads the country’s trade promotion organization, said that the crypto payment method was expected to be completed in a few weeks.
“We are finalizing a mechanism for operations of the system. This should provide new opportunities for importers and exporters to use cryptocurrencies in their international deals,” Peyman-Pak reportedly said, reiterating that the government should take the business and economic prospects of the cryptocurrency industry more seriously.
Peyman-Pak pointed out that in some of their target markets, especially in countries such as Iraq, Afghanistan or Pakistan, there may be restrictions on the use of cryptocurrencies, while in its main markets such as Russia, China, India and Southeast Asia, the use of digital assets is common.
Global progress of CBDCs
No one could have predicted the mass adoption and usage of Bitcoin…
cointelegraph.com