Iran’s Cryptocurrency to Back Bank Transactions in 1st Phase

EghtesadOnline: Iran's in-the-works national cryptocurrency, which is expected to be unveiled soon, will in its first operational phase solely focus on clearing limited bank transactions, a top advisor to the minister of information and communications technology.

News ID: ۷۸۳۴۱۴

28 July 2018

"The Telecoms Ministry's cryptocurrency is not a public coin that will be purchased and traded by the people and traders in the first phase," Amir Hossein Davaie, advisor to Telecoms Minister Mohammad Javad Azari-Jahromi in innovative technologies, told IBENA on Tuesday.

"At present, the Telecoms Ministry's national cryptocurrency is structured in a way that it will be strictly used as an instrument for bank transaction clearance, but after gaining more experience, it is possible for the national cryptocurrency to be used publicly," he said.

Azari-Jahromi announced the news of planning to launch the national virtual currency via Twitter less than a year ago, according to Financial Tribune.

Post Bank was reportedly handling the project for the ministry in collaboration with the Central Bank of Iran-affiliated Monetary and Banking Research Institute. They prepared the preliminary prototype in April 2018.

Local media reports in the past week claimed Iran's national virtual currency will be officially unveiled during ELECOMP 2018, the country's biggest commercial event in electronics, computer products and services market that runs through July 28-31.

According to Davaie, Iran's national cryptocurrency denotes the creation of a virtual legal system with clear banking laws that will be connected to the country's real money market through a number of limited agent banks, including Post Bank.

The Iranian model is different from other cryptocurrencies in that it lacks one of the main criteria–decentralization–as it's supervised by regulators to prevent crime.

"The backing for the national cryptocurrency has not been finalized yet, but its linkup with the capital market is certain and when this happens it will be recognized as a local currency backed by the banks," he said, noting that whenever the field of the currency's work is fully worked out, its backing will change and gold may be assigned as its backing.

Stabilizing Factor

As to how the currency is being implemented, Davaie said it has been devised using a private blockchain, so it cannot be mined publicly like Bitcoin and other public cryptocurrencies.

The private blockchain has been defined in the online systems of several banks and the gateway to clients will be the legal identification system of the banks.

"The policy of the government is not to excessively increase the rate of this currency so that people can look at it as a capital asset. It's supposed to be a stabilizing factor for the country's currency," he said.

Davaie pointed out that as a banking solution, the national virtual currency pursues several goals, including but not limited to boosting and creating stability in Iran's currency, facilitating international and local payments for a variety of businesses, preventing money laundering and economic corruption, and establishing transparency at both ends of transactions.

It also aims to forge free trade with neighboring countries and decrease costs for the banking system, he added.

Nima Amirshekari, the head of Electronic Banking Department at MRBI, said Iran must move toward constructively regulating cryptocurrencies like many other countries.

Officials should have a "reasonable" reaction to this, he said.

"We must use the experience of other countries that have used cryptocurrencies in their economic cycle by studying them and being informed of their benefits and problems so that we can choose the right solution to use their benefits and prevent their potential harms," he told IBENA.

"Cryptocurrencies have entered the country and they're being traded, so we must engage them with a clear and reasonable policy."

Last week, the research arm of Iran's Parliament called on a host of decision-making bodies, including the central bank, to join forces and employ the potentials of digital money and blockchain technologies through constructive regulations to help the economy and circumvent US sanctions.

Majlis Research Center pointed out that various measures could be considered for promoting cryptocurrencies, including the minting of currencies by private and public sectors, trading of cryptocurrencies with fiat currencies, employing cryptocurrencies in micropayments and maintaining cryptocurrencies that include the creation of electronic wallets.

Each of these activities must be regulated separately, the center warned.