More details have been forthcoming regarding the Iranian government’s attempt to build its own national cryptocurrency. CipherTrace, a digital asset security firm, has reported that this new virtual currency, named PayMon but dubbed “crypto rial”, has a real chance at success, unlike its predecessor in Venezuela. The obvious objective of this effort has been to bypass global sanctions and establish an “alternative monetary zone outside of the West’s influence.” The regime may also garner popular support from local citizens that would now have an open avenue to operate in the global trade market.
Iran’s efforts to develop a sovereign cryptocurrency began nearly a year ago when it floated the idea of a “crypto rial”, backed by gold reserves of the country. The next step occurred in late January, when the Central Bank of Iran released an initial version of regulations that would remove the existing crypto ban. At that time, we reported:
The new rules will aim at organising and defining boundaries of ongoing crypto operations in the country, and allowing traders to plan for their future… Furthermore, the only tokens that will be permitted for use in domestic payment transactions must be backed by the Rial, which may only be the national cryptocurrency when implemented.
The government soon elaborated in the following weeks:
Iran unveiled plans for a crypto rial, to be backed by the country’s gold reserves. The government announced that more than a billion tokens would be minted, issued by four of the country’s largest banks. Users would also be able to see the reserves themselves, with a video link to footage of the reserves around the clock.
CipherTrace soon released its report, detailing the clear benefits for the Iranian government and its economy and noting that it could “arrest the declining value of Iran’s national currency.” Iranian GDP had been improving nicely since 2015, but the re-imposition of sanctions is taking its toll. The local economy is expected to contract by nearly 25%. The Rial has also depreciated some 40% versus the USD over the past five years. The final note by CipherTrace:
We conclude that such a currency and the regulations that Iran is proposing, will in fact, result in a flourishing cryptocurrency.
What are the potential benefits? Through cooperation agreements with favorable countries, like Russia and China, and with global crypto exchanges, Iran would be able to essentially bypass sanctions and avoid the stranglehold that SWIFT, the Society for Worldwide Interbank Financial Telecommunication, currently holds over the international banking network. Financial institutions must route cross-border payment flows through this control point, where sanctions can easily be instituted to block capital flows.
David Jevans, the CEO of CipherTrace, forecasts greater liquidity for the Iranian people when moving money where they want it, while the government could keep tabs over every movement of tokens on the blockchain. He explained: “Although they [Iran] would not rely on a centralized system such as SWIFT, allowing the people to do more. It would have much greater surveillance. The state can survey the blockchain far easier.”
The PayMon is not the first attempt at a sovereign cryptocurrency. Venezuela has never been able to get its “Petro” tokens off the ground. Jevans concedes that Iran is different:
Iran is less isolated and has more ability to get Paymon [crypto rial] out of Iran and exchange it for other cryptocurrencies. They signed a trilateral blockchain cooperation agreement with Russia and Armenia. Iran is also building alliances with China and other European countries.
Russia has also divulged similar plans to develop a national cryptocurrency, for similar reasons and benefits. The Iranian stablecoin, however, is backed by Gold, a commodity that everyone understands. There could be an immediately receptive market for these tokens once minted, and Iran would be one step closer to a successful project outcome.