Central Bank of Iran Official: Blockchain No Solution for Sanctions

EghtesadOnline: In light of the new round of US sanctions, there is speculation that authorities in Tehran may seek to circumvent the hostile economic restrictions with the help of blockchain and other financial and monetary technologies.

News ID: ۷۴۶۵۳۹

22 January 2019

However, head of the Monetary and Banking Research Institute has dismissed such reports in their entirety, arguing that Iran’s commercial and financial transactions are too heavy to be handled by newfound technologies like blockchain.

”Blockchain simply lacks the ability and capability to dodge sanctions. Suggestions like these are immature and farfetched,” Ali Divandari told reporters Monday in the run-up to the eighth annual conference on Electronic Banking and Payment Systems slated for Jan. 29-30.

He, however, did not deny the sanction-resistance potential of blockchain and other similar technologies as they operate mainly out of the normal jurisdiction of central banks and financial regulators in many countries, Financial Tribune reported.

“This is true that blockchain functions independently from central banks. Therefore [if launched in Iran] it couldn’t be a target for US sanctions,” Divandari said.

Admitting that the US embargo has targeted Iran’s traditional financial avenues, he said,”even if we make the technology to replace it with traditional financial instruments, the necessary infrastructure may not be available in countries with which we have commercial and financial interaction.”

Blockchain is a system in which records or data are distributed in multiple computers at the same time. It is constantly growing as new sets of data or blocks are added to it.

Each block contains a timestamp and it is connected to the previous blocks which together form a chain. Old blocks are preserved forever and new blocks are added to the system, encrypted to make it impossible to manipulate by fake documents, transactions and other information.

Blockchain is an open source technology that is not owned or supervised by any particular entity, making it a potential alternative instrument by sanction-hit countries to blunt the detrimental effects of sanctions.

As the organizer of the Electronic Banking and Payment System conference, MBRI, the CBI research arm, has selected ‘Blockchain Revolution’ as the main theme of the meeting.

Divandari said the theme is only fitting because blockchain is set to overhaul monetary systems. “Blockchain can truly revolutionize the concept of money,” he claimed.

The CBI official acknowledged the concerns about the threats that crypto-currencies may pose to monetary systems and emphasized that given the rapid expansion of digital currencies, their existence cannot be ignored.

He took stock of the possibility of developing a national crypto-currency to be able to respond to potential threats, expressing the hope that the pluses and minuses of digital currencies would be covered in detail in the upcoming gathering.

CBI Stance

Asked whether placing blockchain and crypto-currencies high on the agenda of the conference can be construed as a shift in CBI policy, he said the CBI is and should be exposed to progress in emerging technologies and as a regulator of the monetary and banking system must be abreast of such developments.

The CBI in April officially prohibited all financial institutions from dealing in cryptocurrencies because of concerns related to money-laundering. But officials have since conceded that the forex crisis that started in the spring of last year was the main reason behind the crypto ban. The ban, among other things, obliges money changers to refrain from "any measures that may  facilitate or promote virtual currencies."

Asked about the status of digital currencies in Iran, Divandari said different countries hold mixed views toward crypto-currencies, admitting the instrument is not formally recognized by the Iranian regulator.

However, he called for recognizing this novel financial instrument and developing appropriate regulations to avert potential threats.

“Crypto-currencies is a reality that exists and their effects cannot be eliminated… this is not only a challenge for us… the whole wide world is facing similar challenges.”

Highlighting the importance of cryptocurrencies in the EBPS conference next week, the MBRI chief said various aspects of this newly-emergent phenomenon, namely threats and opportunities to traditional money, general attitudes, religious considerations, service providers and functions in the real world will be discussed.

Divandari named financial payment technologies, open banking mechanisms, digital developments in the banking system, fight against money laundering and fraud as other topics on the conference agenda.