How Would Iran's Crypto Rial Work?

Iran's recently announced plans for a cryptocurrency to bypass sanctions has caused tension in the global financial system as the country responds to SWIFT banning some of its banks.

Cryptocurrencies may be seen as instruments that impact financial markets, but 2019 could be the year they also affect highly delicate geopolitical situations. About a month ago, Iran unveiled plans to create a cryptocurrency of its own to circumvent sanctions, primarily imposed by the United States.

According to an analysis by CipherTrace, Iran’s move is a response to SWIFT banning a number of local banks from using its system as part of the November 2018 sanction package.

At the beginning of this month, Iranian officials and some banks entered into a partnership to digitize the rial via a gold-backed token called Paymon. This might be the sanction-evading cryptocurrency the country intended to release.

Although Paymon looks similar to Venezuela’s Petro cryptocurrency, there are several key differences that could make it a strong sovereign currency and a thorn in SWIFT’s side.

  • Paymon would have more credibility because it is backed by physical gold, not some resource the country lacks the capability to extract right now, as is the case with Venezuela and its state-controlled oil company PDVSA.
  • Iran’s allies in the East, including Russia, would have an incentive to trade with the country using that money.
  • Iran has clear interests in the Middle East and the logistics to use Paymon to finance its activities in the region.
  • Geographically, Iran has more access to potential unregulated exchange points for its cryptocurrency than Venezuela.

Can Paymon beat sanctions?

The short answer is “yes.” Provided that nothing can stop Paymon’s blockchain, the country could do what it wants with impunity.

Iranian regulatory provisions uphold citizens’ right to use cryptocurrencies, meaning it would not be far-fetched to assume that more powerful individuals inside the country would use this system to evade markets influenced by the SWIFT payment system.

“According to the Iranian Central Bank’s proposed new regulatory framework, individuals will be allowed to have Bitcoins and transact them internationally, although banks and businesses will likely be prohibited from transacting in global cryptocurrencies to preserve the Crypto-Rial/Paymon monopoly,” researchers from CipherTrace wrote.

Since Iran’s financial authorities have the willpower and the unity to make this cryptocurrency a reality, Paymon will likely see use in the near future. Transactions with it would go through grey and black markets, perhaps even serve for converting Bitcoin (BTC) or other cryptocurrencies on exchanges that care little about international monetary laws.

It is likely that the Bitcoin route would be used as the country already has a black market for the cryptocurrency. This was clearly demonstrated when two Iranians, Ali Khorashadizadeh and Mohammad Ghorbaniyan, were able to exchange BTC for rials for hackers involved in a ransom scheme.

It is a workable model but one that involves a convoluted digital trail potentially complicating things for Iran. While Paymon is not a silver bullet, it could provide the shield the country needs to keep financing its ambitions regardless of what others say.

Reading now