Iran's New Digital Financial Reality

Speaking about cryptocurrencies, many often consider them as a new financial instrument and a new way to get away from traditional financial systems suffering from a large number of "diseases" that have accumulated over the years. But if for some countries cryptocurrencies are just an alternative way of transferring values, quite capable of coexisting side by side with the banking system, for others it is a necessity and even a way of survival.

Iran's economy has been living under severe economic sanctions for 40 years and the emergence of cryptocurrencies has become a real opportunity for the government of this country to facilitate trading operations. Therefore they are more than serious about introducing a national digital currency planned to be used for cross-border payments.

The digital rial will run on the Borna blockchain platform, developed using the open source Hyperledger Fabric system. Its application assumes that only the central bank can decide which organizations will have access to it, and also that the national currency currency (digital rial) cannot be obtained, like Bitcoin and other cryptocurrencies, as a result of mining.

The structure of the platform allows several selected banks to maintain and update a distributed network registry, which stores records of all transactions. Other organizations may also be granted access in the future. It is expected that bank users will be able to transfer their rials – either in banknotes or on their accounts – to banks in exchange for the same number of new digital rials that will be stored in blockchain wallets.

According to Said Khoshbakht, one of the people who worked on the development of Borna, the project is unprecedented in Iran and will set a precedent for further projects in the future. Despite the high degree of centralization of the project, this will allow more banks to participate in the work of the distributed registry, potentially providing greater transparency.

Financial technology companies are expected to offer financial services using the digital Rial online, which means that a central bank-approved asset will be required. If executed correctly, Borna could also create a chance for banks and fintech companies to gain access to new revenue streams, potentially rebuilding existing limited fee-based services that have been a thorn in the side of cash-strapped Iranian financial service providers for years. Finally, a large number of smart contracts can be deployed on the platform, which will be another innovation in the Iranian economy.

However, not everyone in the country agrees with such a scheme for building a new digital financial system.

"Local online banking and taxation systems provide the Iranian authorities with huge oversight opportunities, and the digital rial can further expand these powers," says Hameda Salehi, researcher and head of BlockDays, a company specializing in media and events focused on cryptocurrencies and blockchain. Salehi also believes that the large spread of malicious software in Iran may lead to massive attacks on wallets and applications used when working with digital currency.

But even the most skeptical attitude associated with the centralization of financial flows in Iran is not able to change the recognition of the need to change the economic system of a country suffering from rampant inflation.

According to the expert on electronic banking Nima Amirshekari, the digital version of the national currency may be an economic opportunity to slow down negative processes.

"If implemented correctly, the project can help prevent inflation not only in the digital sector. Inflation occurs due to uncontrolled money printing, uncontrolled loans and unsecured loans, so if you take money out of circulation and issue the same amount in digital rials, it can help slow down inflation, provided that the digital rial will not be used to repay loans that are currently being extinguished by rials in circulation.", - says Nima Amirshekari.

What about traditional cryptocurrencies?

This issue also occupies the government of Iran no less than the creation of a digital version of the Rial. In August 2022, the Ministry of Industry officially approved the use of cryptocurrencies for imports as a measure to circumvent US sanctions imposed on its financial and banking sectors. The Minister of Industry, Reza Fatemi Amin, said that the government has already developed rules for using cryptocurrencies instead of the dollar and euro and plans to issue several licenses for the right to work with digital money by the end of the year.

The use of cryptocurrencies when paying for imports is one way to circumvent sanctions, because cryptocurrencies are not sold through conventional channels, such as banks, and they are very difficult to track. Earlier, Iran has already made its first official order for the import of cryptocurrency worth $ 10 million as a test launch, allowing the country to trade digital assets to circumvent sanctions. It is planned that a settlement scheme in cryptocurrencies will be organized in the near future.

"By the end of the year, the use of cryptocurrencies and smart contracts will be widely used in foreign trade with Iran's partner countries," said Alireza Peymanpak, Deputy Minister of Trade.

IslamicCoin is the first project to provide the community with powerful financial technology that allows for seamless transactions, support innovation and charity. The project is 100% compliant with Sharia law and benefits the community. Developers focus on sustainable development and use technology and innovation to ensure financial sustainability.

"At the heart of Islamic finance is the prohibition on charging interest. Islamic finance has always been focused on not shifting most of the risks to one side of the financial relationship. In Islamic finance, balance and transparency of transactions should be observed, which can negatively affect our society," says Mohammed AlKaff AlHashmi, one of the founders of IslamicCoin.

IslamicCoin is aimed at 1.1 billion Muslims using the Internet. The project creates convenient tools designed for users who have never been owners of cryptocurrencies. Thus, the creators of IslamicCoin are expanding the capabilities of the Muslim online community by providing it with opportunities to use a new form of digital money and involving them in the modern digital world.