In the wake of harsh US sanctions after the Trump administration, Iran has plans to launch a digital currency for use within its borders. The Central Bank Digital Currency (CBDC) would be pegged at a 1:1 ratio with the local rial currency.
Interestingly, the project, also known as "crypto rial", is scheduled to be completed within the next few days. Iranian government executives are optimistic about the new digital currency. They hope it would be able to offer increased opportunities to financial players while giving them enhanced prepotency over the local currency.
Over the past week, Iran has decided to legalize using cryptocurrencies for cross-border payments. This move makes Iran one of the leading sovereign entities to take on this sort of approach to the innovative but still new crypto industry.
Nonetheless, it is obvious that the Middle-Eastern nation is taking this route to circumvent the financial sanctions it has suffered for years.
While this decision is still considered an experiment, it could act as a strong argument for crypto proponents who have long attested to the potential of the innovation in breaking the US hegemony in the global order.
Peyman-Pak revealed in August that Iran concluded its first import leveraging cryptocurrency. The import totals $10 million and represents the first of many crypto-based transactions for the nation. However, no further details about the goods imported or the particular crypto asset utilized were established.
More on the Digital Rial
There are limits to using the crypto rial as it is based on permissioned distributed ledger technology (DLT) platform. This technology gives the Central Bank the jurisdiction to decide who or what can access the digital currency. Conforming to this, the currency won't be subject to mining like Bitcoin and other decentralized currencies.
The Iranian digital rial, similar to most cryptocurrencies, would run on an open-source blockchain. Borna, the name of the enterprise blockchain, was developed using Hyperledger Fabric by US tech giant IBM.
However, it's not all sturdy limitations for the currency as the structure allows select banks to update and maintain the network's distributed ledger. It is also believed that other entities will be given the network's records in the future.
The crypto rial would be stored on a special wallet on the users' mobile devices. Users who want some of the CBDC would have to hand over the amount of the rial to the banks in cash or authorise it to be taken from their accounts.
What Does the Future Hold for the Crypto Rial?
Although the new CBDC appears to hinge on a high-end centralization, it would eventually allow more transparency by including more banks in handling the digital ledger.
In an interview with Al Jazeera, Saeed Khoshbakht, one of the developers of Borna, said that the project would serve as a strong precedent for future innovations.
“For now, at least four more nodes will be designated to handle the distributed ledger. It’s true that they’re also banks, but instead of being focused in a single point, the data will now be placed across at least five points, and that number could gradually grow if the project is successful,” he told Al Jazeera.
Despite a gleaming front, the Iranian national bank has also tried to assuage rising privacy concerns. The current financial record-keeping system avails Iranian authorities of heavy monitoring capabilities; a digital currency is believed only to heighten its powers.