The Islamic Republic of Iran is facing the triple wrath of a slowing economy due to US sanctions, hyperinflation, and the devaluation of its currency Rial.
According to a report by the International Monetary Fund (IMF), inflation in the country has already reached 40 percent—the highest level since 1980.
Could cryptocurrency be a ray of hope for the Asian nation as it comes to terms with American sanctions and a deteriorating economy?
Crypto Landscape in Iran
The Hassan Rouhani government in Iran has criticized President Trump for walking away from the terms of the nuclear deal negotiated under the Obama administration in 2015. The American pullout from the deal effectively reintroduced trade sanctions on the middle eastern country.
The Central Bank of Iran had introduced draft cryptocurrency regulations in January 2019. The draft lifted a previously implemented blanket ban on digital currencies.
Iran’s Central Bank has stated that it will continue to relax crypto regulations, allowing registered exchanges to offer crypto trading services.
The US announced the withdrawal of previous waivers issued to 7 countries for buying Iranian crude oil. Iran’s foreign reserves are also dwindling at an alarming pace. Naturally, an extended period of inflation has negative effects on the purchasing power of currency. This jeopardizes the local economy, making it difficult for people to buy and sell daily household items.
However, cryptocurrencies such as Bitcoin are not affected by fiat inflation and can serve as a ray of hope for Iran’s large population.
Iran’s State-Backed Cryptocurrency
The Central Bank of Iran is also believed to be developing a Rial or gold-backed cryptocurrency as an alternative payment method for the masses. The crisis in Venezuela has shown the unreliability of fiat currency and highlighted the advantages of digital currencies.
Iran is now embracing the idea of using digital currencies to avoid the same fate as the South American nation. Rumors indicate President Rouhani personally attended top-level meetings on digital currencies and is considering its adoption as a potential option to sidestep trade sanctions.
Under current regulations, Iran nationals can trade and invest in digital tokens but cannot use them as means of payment settlement. The proposed state-backed digital currency will naturally have no such restriction.
Iranian banks were removed from the global SWIFT payment standard once American trade sanctions were reintroduced. This forced local banks and financial institutions to test and develop their own blockchain based payment settlement protocols. Recently, four Iranian banks have also launched their own digital token to settle payment transfers between them.
Do you think Iran would be able to combat trade sanctions using digital currencies? Let us know in the comments.
