Why Iran is creating its own cryptocurrency and what are the potential risks

The market for cryptocurrencies has caused controversy because it is outside international regulation, moves independently and could serve as a platform for criminal activities, or at least opaque.

There are many official voices from governments and central banks that have issued harsh warnings to put limits on one of the most profitable and, at the same time, most volatile markets in recent times.

Tired of problems with international banking and international restrictions on capital flows, the Iranian government announced that it will develop its own cryptocurrency.

The Minister of Information Technology and Communications, Mohammad-Javad Azari Jahromi, posted on Twitter that the Post Bank (a state bank located in Tehran) is working on the creation of the new digital currency.

“A pilot model will be presented to the country’s banking system for review and approval,” Jahromi wrote.

The announcement comes a month after Donald Trump threatened to reinstate the economic sanctions against Iran that were lifted during the Obama administration.

Currently, the White House reviews every 120 days if it maintains the blockade, as stipulated in the nuclear agreement signed in 2015 with the world’s major powers.

Now it was Iran’s turn to show their teeth. Not only because of the announcement that it will develop its own cryptocurrency, but because on Thursday the deputy minister of Foreign Affairs, Abbas Araqchi, threatened to withdraw from the nuclear agreement if it does not obtain economic benefits and if the big banks continue to avoid the Islamic Republic.

Under the terms of that agreement signed with the United Kingdom, China, France, Germany, Russia and the United States in 2015, Iran agreed to restrict its nuclear program in exchange for the removal of sanctions that have damaged its economy.

Despite this, the big banks continue to maintain their distance from Iran and hinder their efforts to rebuild their foreign trade and attract investment.

“If the companies and banks are not working together with Iran, we can not remain in an agreement that does not benefit us,” Araqchi, Iran’s chief nuclear negotiator, said during a visit to London.

Skip the sanctions

“They are developing cryptocurrencies and undermining (discovering) cryptocurrencies through cyber attacks to compensate for the effects of economic sanctions, and Iran has joined North Korea and Russia in hosting virtual currencies,” said Tom Kellermann, Head of the Cybersecurity area. of Carbon Black, in conversation with BBC.

“This will allow him to receive direct foreign investment in his financial sector to bypass any economic sanctions, and he also gives Iran a mechanism to launder money from its illicit activities, such as support for non-state groups” that work in different countries.

The Iranian discourse has changed in recent months. At the end of last year, the government expressed interest in using Bitcoin and other cryptocurrencies as a way to bypass the economic sanctions imposed on the country.

However, now, he overturned his public artillery against the international market of digital currencies, calling on his citizens not to buy cryptocurrencies because “they can lose their assets,” according to local media Iran Front Page.

According to the same media, the Iranian Central Bank declared that the country does not carry out any type of transactions in that market and that “the wild fluctuations of the digital currencies, together with the competitive commercial activities in course through the network marketing and the scheme pyramidal, they have made the market for these coins very unreliable and risky . ”

The idea that the central banks of the countries develop their own virtual currencies has been present in forums and discussions during the last years.

Countries such as Estonia and Dubai have said they are exploring the option of creating their own cryptocurrency. And although there is no official recognition, analysts believe that China, Russia, and Singapore have been analyzing the same alternative.

Venezuelan petro

Tehran’s declaration comes the same week that the Venezuelan government of Nicolás Maduro issued the pre-sale phase of the petro, its own cryptocurrency.

“The government resorts to Petro as a source of financing at a time when its revenues have fallen due to low production and the reduction of oil prices, the main and almost only source of foreign currency to the country,” said Daniel García Marco, correspondent of BBC in Venezuela.

“To that are added the financial sanctions imposed by the United States that prevent it from issuing new debt or refinancing through the institutions of that country,” he added.

The idea of the petro is to obtain financing outside the circuits of influence of the United States. However, the Treasury Department has already issued a warning against all those interested in investing in that virtual currency.

“Americans who become involved with the future Venezuelan digital currency may be exposed to US sanctions,” it said in a statement.

For now, Washington has not reacted to Iran’s announcement.

Iran’s new virtual currency, which would be backed by oil and natural gas reserves, is not necessarily a guarantee to evade economic sanctions.

But it clearly opens a new stage in the diplomatic game and brings back to the table the discussion about who are the groups behind digital transactions, how far their opacity can go and to what extent governments have been developing potential secret projects to have your own electronic gold.

 

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