Iran will be the first country to adopt cryptocurrency for foreign trade after the Trade Ministry approved it.
The problem with this news is that it clearly aims to circumvent financial sanctions that have hindered its participation in global economic for many years.
These conditions set a skewed tone for Iran’s experiment. While it may prove crypto’s freedom to transcend the all-too real hegemony of the United States’ political will and the international financial institutions that enforce it it, crypto skeptics on the hardline could be able to get the evidence they need to support their claims about decentralized digital assets as a weapon of choice in disrupting the fragile global order.
It is not just about ethical issues, but it is curious to see how this strategy will work and what impact it will have upon Iran’s trading partners.
The road to adoption
January 2022 was the first public announcement about a trading system that allowed local businesses to use cryptocurrencies to pay cross-border bills. Alireza Peymanpak, Iran’s Deputy Ministry of Industry, Mine and Trade, spoke at the time of the “new opportunities” for exporters and importers in this kind of system. This was a joint effort by the Central Bank of Iran and Ministry of Trade.
These cryptocurrencies are available to all economic actors. Traders can take the ruble, rupee, dollar, or euro. They can then use this currency to get cryptocurrencies such as Bitcoin. This is a form credit that can be passed on to the seller and importer. […] Because the cryptocurrency market relies on credit, economic actors have easy access to it and can use it extensively.
Peyman-Pak announced that Iran had placed its initial import order using crypto. The official claimed that the $10m order was the first international trade to be settled using crypto. He did not provide details on the currency used or the import goods.
August 30th, Trade Minister Reza Fatemi amin confirmed that detailed regulations governing the use of cryptocurrency for trade had been approved. Although the entire text is not yet available online, local businesses should still be able import vehicles into Iran as well as a variety of imported goods using cryptocurrency instead of the US dollar or euro.
Latest: The correlation between Crypto and mainstream finance could lead to more bleeding
The local business community expressed its concern about the policy’s design. Alireza Managhebi (head of Iran’s Importers Group, Representatives of Foreign Companies) stressed that cryptocurrencies should be allowed to enter the country with stable regulations. He mentioned the possibility of a new payment that could lead to rent-seeking groups.
What would the process look like?
Babak Behboudi (co-founder of the digital asset trading platform SynchroBit Hybrid Exchange), spoke to Cointelegraph. He said that even though the official policy was only approved in recent years, the Iranian government has been using crypto for payment methods for several years.
There are many reasons the government acknowledged such practices on a nation-wide scale. These include the failure of Iranian negotiators to reach a win-win agreement with the West over the nuclear deal, frustration in the economy, and hyperinflation on the domestic market.
Behboudi said that the Russian-Ukraine geopolitical war and the Chinese digital Yuan have also influenced such a decision.
The effectiveness of the strategy is still a question. It is likely that any potential foreign partner will have difficulties with crypto deals. Most countries, except Iran, do not have a legal framework to allow crypto as a corporate payment method. Potential partners shouldn’t be too confident about their invisibility to U.S. financial enforcement due to the pseudonymity of Bitcoin ( BTC) or other mainstream cryptocurrencies.
Behboudi believes that foreign companies have two options. They could either use proxy companies located in crypto-friendly jurisdictions for the conversion of crypto to fiat, or they could use the services companies from third countries who trade with Iran such as Russia Turkey, China and the United Arab Emirates.
Christian Contardo is a global trade and national security lawyer at Lowenstein Sandler LLP. He believes that Iran’s potential partners are very limited. Crypto transactions are a great way to facilitate legitimate trade in areas where traditional banking is not available or difficult. He adds that it is unlikely that large, legitimate commercial entities will transact in cryptocurrency with Iranian counterparts due to the regulatory frameworks.
Allies and enforcers
Reports about Iran’s circumvention of sanctions using crypto were very rare up until this point. Binance did not face any allegations, even though journalists claimed Binance was serving Iranian customers. Kraken, a major crypto exchange, came under the scrutiny of the U.S. Treasury Department’s Office of Foreign Assets Control in 2019. This is for the exact same reasons. One individual is currently accused of sending more that $10 million in Bitcoin to an exchange in a sanctioned nation.
Latest: Boom or bust? How do Defi protocols handle the bear market.
Contardo believes that the United States will be increasing their scrutiny of transactions involving Iran. Even though it is nearly impossible to track all large transactions in practice, they still have all they need.
“Enforcement agencies, as well as commercial investigative services, have multiple sources to identify the parties in transactions. After the information has been gathered and identified, the evidence in the ledger can be used to support a strong enforcement case.
Recent announcements made by Russian officials suggest that the Iranian strategy could lead to the development of a parallel currency market. This would include countries sanctioned and those willing to trade with them. This possibility is linked to the development of digital currencies by central banks (CBDCs).
“The rise in CBDCs like digital yuan and ruble, as well as rial, rial, and lira can reduce the risk if these countries can manage transactions through bilateral or multilateral agreements. This will allow the businesses to trade with each other using their CBDCs.
So, Iran’s new strategy to adopt crypto as a cross border method isn’t changing much – unless decentralized currencies are allowed as a payment method for private companies — this loophole could attract a small number of countries that didn’t hesitate to trade with Iran earlier.