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Iran turns to crypto to enable easier spending by tourists

Iran’s government and private sector are eyeing cryptocurrencies to resolve a decadeslong lack of international payment channels in the Islamic Republic.
Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. Picture is taken February 13, 2018. REUTERS/Dado Ruvic/Illustration - RC1993E31370

When US President Donald Trump unilaterally withdrew from the Joint Comprehensive Plan of Action in May 2018 and reinstated harsh sanctions on Iran, many feared that Iran’s tourism sector, which has been continuously growing in recent years, would take a hit.

But while the number of tourists, mainly from Europe, has declined, the devaluation of the Iranian rial — triggered by sanctions and exacerbated due to poor management — lured many more foreign tourists to Iran, especially from neighboring countries. The rial lost more than 60% of its value in 2018, making Iran, already a price-competitive tourist destination, even cheaper. Intensified pressures also prompted both the government and the private sector to fast-track projects long in the pipeline.

Meanwhile, cryptocurrencies and blockchain technologies have recently become hot-button topics in Iran, more so after US sanctions were reimposed. Many high-profile projects are currently in the works in Iran.

It comes as no surprise, then, that the intersection of tourism and cryptocurrencies is being seriously eyed by both the government and the private sector.

If Iran manages to successfully tap into existing potentials in this area, it could prove to be a turning point for the country’s underdeveloped tourism sector and a source of much-needed hard currency. Iran feels a deep void in terms of money transactions in its tourism sector due to decadeslong restrictions that mean foreign tourists have to pay for almost all tourism facilities in cash due to a lack of access to international payment methods.

Efforts by the Iranian government to utilize digital currencies in the tourism sector are led by the Cultural Heritage, Handicrafts and Tourism Organization (CHTO), whose head, Ali Asghar Mounesan, reiterated in early February that digital currencies are an ongoing focus for the organization. The CHTO chief had in late July 2018 proposed forming a joint digital currency fund with India to develop tourism ties. Also in July, chairman of the board of the Iran Electronic Tourism Association, Hassan Ansari, announced that after securing approval from Mounesan, the proposal to establish a state-run digital currency for the tourism sector is currently being reviewed by top-level authorities, including First Vice President Eshaq Jahangiri, then-Central Bank of Iran head Valiollah Seif and Minister of Information and Communications Technology Mohammad Javad Azari-Jahromi.

No further details have been publicized by the government yet. That is possibly because Iran’s digital currency scene has witnessed several high-profile developments in recent months on the state level that could impact the proposal. For one, a sovereign cryptocurrency backed by the rial and relating blockchain infrastructures are nearing completion under the auspices of the central bank. On the other hand, the central bank released an early draft regulatory framework on cryptocurrencies in late January that needs to be finalized before any state projects can begin work in earnest.

Blockchain technologies could facilitate tourism in a variety of areas, from security and identification at airports and other venues to payments, reservations, luggage tracking and income management. But actually realizing such uses requires extensive research and technological infrastructures, whereas Iran still struggles with providing necessary physical and digital infrastructures for its tourism sector. Therefore, any short-term attention directed by the Iranian government to this area will be focused on facilitating payments through digital currencies.

But while the government ponders its next move, a vastly nimbler private sector has already seen tangible results, albeit on a small scale.

IranByBit is a small travel startup consisting of several enthusiastic millennials that offers a host of services and accepts payments both in bitcoin and cash on arrival. At the moment, they offer tours, accommodations and Iranian SIM cards and debit cards.

“A state-run crypto doesn't have the potential to address any of the problems of accessibility, acceptability and reliability of the local currency in tourism,” IranByBit research and development head Ziya Sadr told Al-Monitor.

“On the other hand, a widely accepted and accessible cryptocurrency such as bitcoin could help small businesses in the tourism sector to allow a wide range of customers from anywhere in the world to use their coins inside Iran,” he said.

In the few months they have been active, the company’s bitcoin-fueled tourism has begun serving travelers from around the world. As Sadr sees it, the private sector is the natural choice that can excel in the tourism sector. As it stands, the central bank draft regulatory framework has no effect on their work since IranByBit does not serve travelers inside Iran.

“But naturally a more lenient and open approach adopted by the regulatory framework would be much more desirable for the whole bitcoin ecosystem inside Iran,” Sadr said.

Among other things, the draft regulatory framework proposes prohibiting the use of global cryptocurrencies such as bitcoin as methods of payment inside Iran. The local cryptocurrency community is actively working to shape a lighter regulatory touch and reverse some of its restrictions.

Other private sector players are also entering what could soon turn into a lucrative niche market. During the 12th Tehran International Tourism Exhibition held Feb. 12-15, the Rmoney cryptocurrency exchange, which started operating less than a year ago after obtaining a central bank license, unveiled a tourism digital currency system. The system allows all firms active in the tourism sector to sign up and receive their money from their foreign customers in cryptocurrencies without paying any fees. They can then change their cryptocurrency incomes to rials using Rmoney.

“The goal of designing the tourism digital currency system is to resolve issues relating to foreign payments,” Rmoney CEO Mehdi Naseri said in a recent interview. “As payment obstacles in this sector are resolved, we will certainly witness facilitation of processes in attracting foreign tourists, which, in addition to generating foreign currency revenues, will create many job opportunities.”