Jul 5, 2024
The Central Bank of Iran (CBI) is launching a national digital currency in a pilot program aimed at domestic retail payments. On June 18, the CBI officially announced the launch of a pilot scheme for Iran’s Central Bank digital currency (CBDC), called the digital rial.
The digital rial will be available to banking customers and tourists on the island of Kish. The pilot started June 21, the first day of the calendar month of Tir. The digital rial will be purely electronic; there will be no coins or banknotes. It will also be worth the same as an ordinary rial and will not be traded as an item with a unique value like regular cryptocurrencies.
In other words, it will not be a crypto-currency, just an electronic version of the rial. As part of the pilot, bank customers and tourists will be able to use the digital rial to pay for goods and services by scanning a barcode through special software. The digital rial introduces an additional payment method in addition to cash and bank cards. As Kish operates one of Iran’s free trade zones, tourists from many countries are exempted from obtaining a visa to visit Kish. Kish is the third most visited holiday destination in the Middle East, after Dubai and Sharm ash-Sheikh in Egypt.
“Unlike other types of electronic money commonly used in the country, which are used through bank accounts and common payment tools such as bank cards, the digital rial does not require interbank settlement to transfer funds between the buyer and the seller,” the CBI said in the statement, adding that the funds are sent as soon as the transfer is completed. “Payment with this method is much easier than common card payment methods while increasing payment security,” the CBI said.
One of the long-term missions of the digital rial is laying the groundwork for the development of a digital economy in the country. “Other important goals, such as increasing resilience and stability in the country’s payment infrastructure, recreating the role of electronic banknotes in small payments in the country, improving the efficiency and developing new payment tools, and managing the risks caused by the spread of private money, are also considered,” the bank said.
The government of Iran has taken a mixed stance on cryptocurrencies like Bitcoin. While allowing crypto purchases and sales, the Iranian government has banned the use of crypto as a means of payment for goods and services. Iran has also been regulat ing the local cryptocurrency mining market since 2018.
According to US Democratic Sen. Elizabeth Warren of Massachusetts, Iran’s cryptocurrency miners pose a national security threat to the US, as they might allow Iran to bypass US sanctions. In February, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on the Informatics Services Corporation (ISC), a Central Bank of Iran subsidiary responsible for developing the digital rial and other payment systems.
Iran’s membership in BRICS has led to a push for collaboration on payment systems and digital currencies as a US dollar alternative. This aligns with Russia’s stance to promote local currencies and reduce dependence on the US dollar. The move comes after sanctions restricted Moscow’s access to Swift for international transactions.
Iran has been cut off from Swift for years. The sanctions on the two countries resulted in Iran partnering with Russia on CBDC, which will be goldbacked when it is authorized for cross-border payments. These developments heightened fears that the digital rial could enable sanctions evasion when combined with efforts from Russia.
