The Central Bank of Iran needs to adopt an appropriate approach to the cryptocurrency industry as a whole including the central bank digital currencies to remain abreast of transformations in global financial markets.
"Whether we like it or not people are showing interest in cryptocurrency. The central bank should make use of this opportunity, mainly by issuing CBDCs and using them as an instrument for managing liquidity and money supply," Esmael Lellahgani, the CEO Bank Refah, told the Islamic Banking Conference on Tuesday.
The CBI is studying the issuance of “crypto-rial” as a central bank digital currency (CBDC) and a digital form of fiat money. CBI officials have said if issued, the crypto-rial would be used for small cashless transactions.
However, the regulator has not yet made any decision about launching the crypto-rial and probably prefers to do so after the economy is back on track and the public at large are familiar with the CBDC and its benefits.
The International Monetary Fund has published several reports exploring the benefits, risks and challenges of issuing CBDCs.
CBDCs are expected to help boost competition, reduce transaction costs, expand access to services and encourage financial participation via mobile devices, according to the IMF. But the IMF says it can also reduce the ability of local governments to conduct monetary policy and control domestic financial conditions.
However, “without appropriate measures, foreign CBDCs could facilitate illicit flows,” it said, adding that this will make it difficult for regulatory authorities to enforce exchange restrictions and capital flow management measures.
Lellahgani noted that using new forms of money could give the Iranian economy more freedom in terms of international transactions. "CBDCs could be used in bilateral deals with neighboring countries," he said without providing details.
Cryptocurrency Rules
Referring to CBI policies regarding cryptocurrencies, the banker said, "The central bank needs to act more dynamically when it comes to cryptos. We do have some regulations regarding cryptomining but no rules when it comes to trading and exchanging cryptos."
Mining virtual currency is legal in Iran and miners can operate under rules approved by the government in July 2019. As per law, miners of cryptocurrencies are recognized as owners of the digital asset.
However, monetary and banking laws state that digital currency cannot be used for payment inside the country. Even though converting cryptos is not restricted.
The sharp increase in cryptocurrency investment in recent months and wild fluctuations in its price prompted officials to announce to contain the likely consequences of decline in cryptocurrency value.
Several authorities have criticized the central bank for delays in implementing measures for regulating crypto trade.
In March and following stringent anti-money laundering measures, the CBI ordered Shaparak, the local payment settlement network, to block online payment gateways owned by crypto exchange websites.
In May 60,000 people involved in the crypto business signed a petition asking the then president Hassan Rouhani to stop blocking crypto exchanges.
A study conducted by the High Council of Cyberspace shows total bitcoin trade in Tehran alone is in the region of 30-40 trillion rials ($130-174 million).
Another recent study by the Tehran Chamber of Commerce, Industries and Mining, showed 12 million Iranians have invested in digital currency.
