Iran aims to develop central bank digital currency
As payment methods continue to evolve, new innovations improve the financial infrastructure that has been used for years. Currently, Central Bank Digital Currencies (CBDCs) are a topic that has caught the attention of many countries around the world, including the Islamic Republic of Iran.
The Middle Eastern nation has faced considerable economic and financial difficulties due to sanctions imposed on it by the United States and believes that piloting a CBDC can solve the problems associated with the blockade.
Additionally, some see a CBDC as a potential solution to the perceived corruption problem in the country.
Corruption allegations have dragged on in Iran for decades. The Corruption Perceptions Index released by Transparency International in 2020 had given Iran a score of 25 out of 100. Those charged over corruption allegations include high-level government officials, including top judges and a speaker of parliament recently imprisoned.
The Path to a CBDC
In 2018, Iran began its journey towards digitizing its currency when the Central Bank of Iran (CBI) ordered the Informatics Services Corporation, an executive branch of the central bank concerned with payment and data services. automation, to build a CBDC.
Local media outlet Ilna reported in January that CBI Deputy Governor for Information Technology Mehran Moharamian said development of the CBDC is expected to begin soon. However, he declined to provide 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 not confirmed 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 on the Iranian Central Bank 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 transmitters.
Ghazizadeh said the target audience and the government market are still unverified and it is unclear how the CBDC will be available for public use. “Our knowledge of the matter is, in fact, general,” he said, “But, it looks like the pilot version could take more than a year to complete. provided.
Iran Is Crypto-Friendly, But Power Issues 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 outages persisted following historic droughts and crippling sanctions, the government had no choice but to temporarily halt mining activities.
“The Department of Energy has implemented measures since last month to reduce the use of liquid fuels at power plants, including shutting off power to licensed crypto farms, turning off streetlights in areas less risky and strictly supervising consumption,” said Mostafa Rajabi Mashhadi, the deputy. managing director of National Grid Dispatching, had announced in December last year.
Defend international trade with crypto
In early 2020, Iran issued 1,000 crypto mining licenses as local authorities realized the potential of crypto to help the geopolitically isolated country in international trade.
Amir Hossein Saeedi Naeini, member of the Organization of Trade Unions and IT, said in January 2020 that “the current situation in the country is very particular and we need foreign exchange earnings; In this situation, the digital currency mining and mining industry, while importing foreign currency, can facilitate trade…”
With cryptocurrencies proving to be very useful in fostering international trade, Iran has recently expressed interest in tapping into this potential. Last month, the Central Bank of Iran and the Ministry of Commerce 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 the Mehr news agency, Iran’s Deputy Trade and Development Minister Alireza Peyman-Pak, who also heads the country’s trade promotion organization, said the crypto payment method is expected to be completed within a few days. weeks.
“We are in the process of finalizing a mechanism for system operations. This should provide new opportunities for importers and exporters to use cryptocurrencies in their international transactions,” Peyman-Pak reportedly said, reiterating that the government should take the business and economic prospects of the crypto industry more seriously. currencies.
Peyman-Pak pointed out that in some of their target markets, especially in countries like Iraq, Afghanistan or Pakistan, there may be restrictions on the use of cryptocurrencies, while on its main markets like Russia, China, India, and Southeast Asia, the use of digital assets is common.
Global CBDC Progress
No one could have predicted the massive adoption and use of Bitcoin and other altcoins in the early stages of digital asset development. The main goal was to provide decentralization and put the power in the hands of the users.
CBDCs may just be a way to reign in the decentralization that cryptocurrencies have so far managed to achieve. To some degree, banks may be comfortable with using crypto as speculative assets, but may not be willing to accept the idea that these virtual currencies can serve as a medium of exchange.
While the idea of digital currency paved the way for financial inclusion, to some extent it is clear that central banks have seen the benefits and are now aggressively trying to launch a Bank-backed digital currency. .
With over three million people adopting the Chivo Bitcoin wallet, El Salvador can serve as a prime example of a country striving to achieve equal access to financial services, especially in a world where the an estimated 1.7 billion people are unbanked.
There are arguments that CBDCs are not really cryptocurrencies because they are not decentralized. Looking in depth, however, CBDCs are not much different from many cryptocurrencies. Just as Ripple’s XRP can be classified as a centralized coin, CBDCs are similar because their issuance is determined by a centralized entity, in this case, the government.
While governments are increasingly interested in digitizing fiat currency, some major economies are already in the pilot stage of CBDC – studying and researching its viability. Others, on the other hand, have committed resources to CBDC studies and are exploring other options.
According to the Atlantic Council’s CBDC tracker, 87 countries that represent over 90% of the global economy are exploring CBDCs. Nine have launched their digital currencies including Nigeria, the Bahamas and seven other Caribbean island countries.
Some 14 countries are testing pilot versions of their CBDCs. Among these, the Chinese digital yuan is making the buzz. Some other countries are in the testing phase, including Sweden, Thailand and South Korea.
The United States is still in the research phase of retail CBDCs and consultation with researchers at the Boston Fed and MIT.
The Reserve Bank of India is looking to introduce a digital form of the Indian Rupee in 2022 or 2023 and the pilot launch is expected to start on April 1 this year. However, there are no detailed details on how the digital rupee works, either with blockchain or other relevant technologies.
“Introducing a central bank digital currency will give a boost, a big boost to the digital economy. The digital currency will also lead to a more efficient and cheaper currency management system,” said Nirmala Sitharaman, Minister of Finance of India.
A solution in search of problems
As the payment system continually evolves with individuals demanding faster transactions and banks seeking to play a better role in facilitating payments, central banks or federal reserves have been urged to develop CBDCs that can be helpful to the public.
According to Governor Christopher J. Waller of the Federal Reserve Bank who recently spoke at the American Enterprise Institute in Washington, DC, CBDCs are “solutions in search of a problem.”
“It could be argued, for example, that the general public has a fundamental right to hold a risk-free digital payment instrument, and a CBDC would do so in a way that no privately issued payment instrument can,” Waller said. “On the other hand, thanks to federal deposit insurance, commercial bank accounts already offer the general public a risk-free digital payment instrument for the vast majority of transactions.”
If the CBI’s plan to pilot the CBDC comes to fruition, the Iranians would be able to facilitate seamless local and international trade using digital currencies.