September 21, 2018
A few months ago, the Central Bank was trashing cryptocurrencies and warning Iranians to stay away from them. But now it is on the verge of giving birth to its very own crypto in hopes it will help Iran dodge some sanctions bullets.
It is far from clear that will indeed prove true. But planners in the Rohani Administration say the regime is now prepared to give it a try, copying a ploy adopted this year by Venezuela, which is having even more serious economic problems than Iran (and facing inflation of 1 million percent this year, according to the International Monetary Fund).
The Financial Tribune reports that a draft of a project plan has been adopted and forwarded to President Rohani. Officials say it is likely to be unveiled to the public by September 22.
The goal is to bypass US sanctions by creating a system to “facilitate the transfer of money [to] anywhere in the world,” something that Iran has trouble doing since it cannot access the dominant dollar part of the international financial world, a problem that dates back years and has nothing to do with President Trump’s re-imposition of sanctions.
The collapse of the rial has reportedly prompted large numbers of wealthy Iranians to go to Bitcoin and other cryptoc-urrencies. Some analysts say Iranians have plunked $2.5 billion into cryptos. That is capital flight. As a result, the regime cracked down with such measures as blocking access to foreign crypto currency exchange websites. The Central Bank outlawed cryptocurrency trading for fears it would be a route for money laundering.
But Iranians with big cash reserves to invest in cryptos also have the ability to get around the regime’s website filters. So the state’s actions are not thought to have had much impact.
The new Central Bank conclusion: If you can’t beat ‘em, join ‘em.
According to media reports, the as-yet-unnamed new crypto will be backed by the Iranian rial, which has lost more than half its value so far this year. That isn’t likely to provide much encouragement for people to invest in Iran’s cryptocurrency.
The Iranian cryptocurrency will be similar to Bitcoin in that transactions will be carried out on an online ledger called a Blockchain. However, it will not be possible for people to “mine” it because the infrastructure will be private, Iranian officials explained. However, only a few days later, Abol-Hassan Firuzabadi, the secretary of Iran’s Supreme Council on Cyberspace, announced that mining would be accepted by the Islamic Republic.
“Mining” is central to Bitcoin. With paper money, a government decides when to print and distribute money. Bitcoin doesn’t have a central government. With Bitcoin, miners use special software to solve math problems and are issued a certain number of Bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine. The Central Bank said that only the Central Bank would be able to create more cryptocurrency. That reverses the whole concept of Bitcoin, which is that it cannot be controlled by any government, only by the people.
The term Bitcoin is actually a misnomer since there are no coins or banknotes. Crypto-currency exists only in the ether of the Internet.
The September launching will be of a limited nature with the cryptocurrency available only to financial institutions. Officials will monitor and test the system. If satisfied, they will expand the system to the general public after some months.
Venezuela’s cryptocurrency is not backed by its worthless currency, but by its reserves of oil, gas, gold and diamonds. It isn’t clear why Iran did not take that route.
Russia appears to have a role in Iran’s cryptocurrency plans. Both the Iranian and Russian media have announced a meeting of officials from both countries to discuss crypto currencies. The Iranian official who outlined Iran’s plans said crypto currencies could help both countries evade US blockages on their access to the dollar financial world.
