Iran Tests State-Backed Cryptocurrency To Replace SWIFT. Russia Being A Gray Cardinal

So it finally happened: the U.S. forced SWIFT network to disallow the Central Bank of Iran from working with financial institutions worldwide. The tension between the two countries was increasing month by month during 2018: Iranian commercial banks were removed from the SWIFT network in May already. Eventually, Iran’s global isolation took place, what was the trump card played by the United States, if you forgive my pun. Iran knew the consequences, and has been preparing for the whole year to mitigate the adverse effects — the state authorities claimed to find refuge in using cryptocurrency for international payments’ processing. What kind of takeaway message is there for the global market?

The geopolitical turmoil as an impulse for new economical solutions

The geopolitical outbursts force some countries to take economical measures they wouldn’t have intended to utilize in less stressful situations. Venezuela and Iran are a good example. There is some kind of an irony that these states claimed ‘authoritarian’, which, in fact, have strict internal policy of governmental control, turn to ‘libertarian’ systems like blockchain-based currencies. However, let’s not mix it up all together into a pile — especially the political stances with the economical ones. Steve KEEN, Kingston University professor, expressed his view in media that no country should have the authority to remove other countries from the global system: “The sooner the rest of the world develops an alternate payments system – possibly working through SWIFT, but using a basket of currencies as the basis for a supra-national unit of exchange – the better.” Currently, it’s obvious that the USA is powerful enough to dictate its political will to the rest of the world — threatening it with the economical consequences.

This makes countries under sanctions to act faster, to find and develop new ways of transacting with its partners. Blockchain technology can be the solution, and there is a probability that the developments in this area, supported by officials, can boost the industry as a whole. But is there a chance that Iran or any other country will succeed where Venezuela didn’t by now? Iran, in fact, is in a better economical situation than Venezuela, which issued the Petro claimed to be backed by oil — at least they needed to have something behind it. But it appeared that the currency has found no takers, and the oil that was meant to back it up on a one to one basis with each barrel just isn’t there. Moreover, the cryptocurrency ran into turmoil with forks, making the situation even more obscure.

Now it is Iran’s turn for a challenge — the country must scale the new height under harsh conditions and pressure. Its national cryptocurrency is to be backed by the fiat unit, the rial. Seyyed Abotaleb NAJAFI, CEO of Informatics Services Corporation (ISC), responsible for the project implementation, said the state cryptocurrency “can be used in a distributed and one-to-one framework for transferring without any institute’s interference.” After the CBI’s approval, it will be issued to banking institutions for testing in payments, internal and interbank settlements.

Through trial and error. Who’s next in line?

In lights of sanctions by the USA, Mohammad Reza POUREBRAHIMI, Iran’s Parliamentary Commission of Economic Affairs (IPCEA) head, stated that the country has been working with Russia, to process international payments using cryptocurrencies: “Over the past year or two, the use of cryptocurrency has become an important issue. This is one of the good ways to bypass the use of the dollar, as well as the replacement of the SWIFT system. Russian authorities share our opinion. If we manage to promote this work, then we will be the first countries that use cryptocurrency in the exchange of goods.” Russians have also been involved in Petro developments as consultants. Russian Federation is also under a bunch of sanctions, thus their activity in these developments may seems absolutely logical.

The activity of the governmental authorities in the sphere of crypto technologies seems to be widespread, however, do they really have a clear vision of what they’re doing? The fact that Iran is going to back its new crypto by fiat rial, tells that mostly they don’t. “It is necessary not to cause confusion — there is a misleading thing:  in fact, these are not cryptocurrencies. These appear to be something called ‘digital coins’ — something similar, but it’s not close to the idea of cryptocurrency,” says Sandris MURINS, AI tokenization, and ICO Advisor. “The created state-regulated digital coin, it doesn’t need blockchain, it is centralized and governed. The state currency and decentralized currency are opposite, it is about trust issue. If someone doesn’t trust Central Bank, its currency — that person can decide to put trust into blockchain, a decentralized system with no authority,” he explained. Truly, the issue of state-backed and authority-controlled currency is not close to cryptocurrency decentralized principles. There is no sense in digitalization of rial and calling it a ‘new cryptocurrency’ on the market. It’s a precedent, but something new, another instrument close to a definition of ‘stablecoin’.

The similar movements can be observed in China, developing its government blockchain; Turkey with the idea of “Turkcoin”, another state-issued currency. There is Russia, testing ICOs in the biggest bank’s ‘sandbox’ and helping others practice in their playgrounds — like Venezuela and Iran. All of these countries have tense relations with the United States, and that explains a lot. However, there are others, more or less loyal or neutral to the USA, who are also working on state-involved projects: Japan, UAE, India, Cambodia.

There is one concern, which most of these states don’t express openly. The fate of publicly ostracized Iran made it obvious that the U.S. can exert pressure on everyone it suspects in being an opponent. The sight of an enraged muscle-playing prosecutor, waving its economic banhammer, causes a will to protect yourself. In this case, it is about finding an alternative to existing global economic instruments of value transaction. Through trial and error, countries test the possibilities pursuing their own political and economic goals, where avoiding risks from a global “cut-off” is the primary one.