While the Central Bank of Iran plans to pilot its long-awaited central bank digital currency (CBDC) project, the Crypto-Rial, by November, experts has expressed strong reservations about the practicality of the move and its anticipated positive impact on the economy.
According to Ali Salehabadi, the CBI boss, the bank has in place infrastructure and rules for the Crypto-Rial. The cryptocurrency is planned as a new type of national currency, like banknotes and coins, but fully digital.
Based on what is known about the CBI crypto agenda, the digital currency is not designed to compete with global cryptocurrencies. Unlike bitcoin and other cryptos, CBDCs are centralized, not anonymous and in accord with anti-money laundering requirements.
The move seeks to help improve financial inclusion and function as a powerful tool for the CBI to compete with other stable coins globally.
The digital currency is to be minted in a distributed ledger system, consisting of authorized financial institutions and capable of implementing smart contracts.
Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
The CBI earlier provided some details about the project in a draft of a Crypto-Rial whitepaper. Even though the document contains valid information it has failed to address concerns raised by economists and the experts.
The CDBC is set to be used for micropayments inside the country, but analysts say the businesses are not prepared to accept the new national currency from customers. Moreover, users' familiarity with digital wallets and its security must be promoted before implementing the plan.
At the macro level, experts have expressed anxiety about the potential negative impact of the Crypto-Rial on banks.
"Basically banking is a business of financial intermediation…implementing large projects would weaken banks’ role in financial intermediation; it would also impact their assets and lending power and ultimately multiply their losses," Ahmad Azizi, a former deputy governor of the CBI, said, Tejarat News reported.
"It seems that the CBI has not clarified the project to experts simply because no banker so far has made any statement to this effect," Azizi noted.
Studded With Ambiguities
Market analysists, developers and e-commerce experts met recently to assess the CBI document about the Crypto-Rial. A glance of their stances and statements confirms Azizi's position about the ambiguities surrounding the project and CBI's inability or unwillingness to set the record straight.
Mehran Moharramian, the deputy for innovative technologies at the central bank, said earlier that the CBI's primary aim in developing the Crypto-Rial is to create a new programmable form of currency, known as open money. "This means that money will be equipped with smart features and be multipurpose. A key feature will be close monitoring of how bank loans are used, which is almost impossible with the existing national currency, the rial."
Abbas Ashtiani, head of the Iran Blockchain Association, has also expressed fears about the central bank’s approach to blockchain technology. "The technology is capable of providing a wide range possibilities and features. However, we need to see how the CBI intends to use the new technology, which features or aspects would be used and which will be blocked," the Persian-language journal Peivast quoted him as saying.
On the other hand, there are experts support the CBI plan. Nima Amir Shekari, an e-banking expert, said the CBDC project would help the central bank, as the regulator of the sector, learn more about cryptos.
"Central banks can later draw on their experience to propose workable regulations about cryptocurrencies and crypto assets," he said.
