Post-sanctions integration in the international financial sector has been one of the main challenges in the Iranian economy since the implementation of the Joint Comprehensive Plan of Action in January 2016. As such, one could anticipate that Iranian officials would welcome the emergence of cryptocurrencies as a platform for international payments. Notwithstanding, the Central Bank of Iran (CBI) has not yet officially sanctioned the use of virtual currencies. According to official statements, initial studies are being carried out on the technical as well as legal aspects of using such currencies in Iran. Experts agree that there is a demand for using cryptocurrencies both as an investment vehicle as well as a payment method for international transactions. However, technical, legal, political and economic obstacles need to be tackled before such currencies can be utilized.
Iranian officials have a tendency to view new external phenomena with a strong degree of suspicion. Consequently, hesitation to endorse a new concept and take responsibility for it is the general pattern. Notwithstanding, Deputy Information and Communications Technology Minister Amir Hossein Davaee recently stated that his ministry had carried out a number of studies to prepare the infrastructure to use bitcoin inside the country. Incidentally, he also said that digital infrastructure was “part of the soft power of the country” and that the introduction of cryptocurrencies would be in Iran’s “general interest."
These comments were followed by statements from Nasser Hakimi, the CBI’s deputy director of new technologies, who said in mid-November that the CBI was planning to examine its policies about digital currencies. Hakimi said, "Given that bitcoin and other currencies have not been introduced by the Central Bank as the official currency, as well as the risk of buying it and the activity of traders in this field, more precautions are coming into the market because of the possibility of malice." In early 2017, Hakimi had referred to bitcoin as an “opportunity” that should be exploited by the Iranian government. He claimed then that bitcoin and other digital currencies could be used by traders who failed to open lines of credit due to banking issues. In the meantime, Hakimi has also repeatedly warned about investing in bitcoin as a speculative investment tool and that it will witness fluctuations leading to losses for Iranian investors.
The above official statements underline the challenge of officially endorsing digital currencies in the Iranian economy. At the same time, a number of decision-makers view cryptocurrencies as an opportunity to manage some of the risks that Iran is facing due to bottlenecks in the financial sector. The question is whether the authorities will manage to overcome the diverse barriers to developing and using cryptocurrencies or whether it will remain in legal limbo.
From a technical point of view, according to deputy ICT Minister Nasrollah Jahangard, his ministry has already confirmed that it would have the technical capability to detect whether or not digital currencies are genuine, but the license would have to be issued by the CBI. Jahangard summed up the challenge, saying, “Because of the restrictions in international banking that Iran has faced, some believe that cryptocurrencies are a threat and others believe they are an opportunity.”
One of the obstacles will be the CBI and the government’s hesitation to allow cryptocurrencies to become another platform for speculative investments in Iran. Furthermore, a number of Iranian stakeholders are concerned about the resurgence of so-called pyramid schemes using virtual currencies.
The fact is that some of the brokerage firms in Iran are offering bitcoin investments to their clients, though the transactions are not approved by the Tehran Stock Exchange. For bitcoin to become an official investment vehicle, it would have to be endorsed by the country’s Securities and Exchanges Organization (SEO). According to a statement by Shapour Mohammadi, head of the SEO, a conclusion on virtual currencies has not yet been reached. Mohammadi recently stated that “one of the most important points in the process of securing the SEO’s approval is the question of value creation of an investment vehicle in the economy. As long as the potential value creation of bitcoin remains ambiguous, it won’t be endorsed.”
Some will argue that bitcoin and other cryptocurrencies would allow Iranian businesses to engage in international transactions without having to open bank accounts and credit facilities in international banks. However, for that purpose, the bitcoin market is still too volatile and also too unregulated to be fully endorsed by Iranian authorities. Furthermore, from a political point of view, one key aspect will be whether Iranian holdings in bitcoin would be safe in regard to being blocked by the United States or any other authorities.
For bitcoin to become a widespread investment tool, there is also a cultural obstacle. Even if so-called foreign exchange bureaus would be allowed to sell bitcoin, small investors would be hesitant to trust the value of a virtual currency. Nonetheless, experts opine that there is a market and that investors would like to use official foreign exchange bureaus as opposed to going through unlicensed middlemen.
Amid these developments, the CBI has announced that it will issue an official position on virtual currencies by the end of the current Iranian year (March 20, 2018). Considering the mindset of Iranian decision-makers, it is most likely that there would be an effort to create a localized cryptocurrency that could be used for international payments with those trading partners that would accept the Iranian virtual currency. Such a move would be partly motivated by the desire to be in full control of the process and partly to prevent fraud, but it would mean that the Iranian approach would be centralized around the CBI, which would have to authorize all transactions. Such a rigid approach would be completely against the decentralized concept of Blockchain, which will work as the backbone of future cryptographic transactions.
Having experienced harsh external sanctions, Iranian officials prefer not to create any dependency on international instruments. Though one segment of the political elite wishes to see a greater level of integration in international processes, the more suspicious stakeholders will push an agenda against international cryptocurrencies. Hence, for now, the use of digital currencies will remain in a legal and political limbo.