The governor of the Central Bank of Iran, Mohammad Reza Farzin, said the regulator is looking at proposals for launching the "offshore rial" for use in markets in Afghanistan and Iraq.
He made the announcement in the monthly meeting with senior economists, the CBI website said without providing details of the planned currency.
Investigations by way2pay indicate that the concept of offshore rial was raised by participants in the meeting for use in foreign trade and the CBI is to look into the prospect. It seems the bank is also keen on using the digital Rial in cross-border trade.
President Ebrahim Raisi earlier called on the central bank to create the infrastructure for overseas trade using the national currency with target countries and take effective steps to de-dollarize trade with specific countries.
Morteza Azati, who participated in the CBI meeting, told way2pay website that "The central bank did not provide details or a specific plan of action regarding the design of the offshore rial and we have no information about this matter…It was proposed by one of the participants and the regulator expressed interest saying it would examine the design of the currency."
Offshore currencies are typically those that are held and traded outside the country of their origin, often in offshore financial centers or tax havens. These currencies are commonly used for international business transactions, investment, and wealth management purposes.
In other words, "offshore" is used when one of the financial or banking elements of a country is used by citizens of another country outside its borders. However, with these interpretations, it remains unclear how the offshore rial can or would be used in neighboring markets or in other countries and what role and influence it would have in easing Iran’s foreign trade under the US sanctions regime.
For instance, China has an offshore currency known as the offshore yuan or CNH (Chinese Yuan - Hong Kong). The offshore yuan refers to Chinese yuan (CNY) that is held, traded, or used outside mainland China, primarily in Hong Kong.
The offshore yuan market in Hong Kong was established to facilitate international trade and investment in yuan, as well as to promote the internationalization of the Chinese currency. It allows market participants, including global investors and businesses, to access yuan-denominated financial products and conduct transactions in yuan outside mainland China.
The offshore yuan market operates within certain regulatory frameworks and restrictions set by the Chinese government. The People's Bank of China (PBOC) closely monitors and manages the offshore yuan market to maintain stability and control over the currency's internationalization process.
However, as China continues to liberalize its financial markets and promote the international use of the yuan, the distinction between offshore and onshore yuan is gradually becoming less significant.
Digital Rial
Vahid Shaghaghi Shahri, another participant in the meeting with the central bank boss, told way2pay about the CBI intention to use the digital rial (crypto-rial) in cross-border trade.
"The central bank aims to use digital currency in commercial transactions between Iran and neighboring countries such as Iraq and Afghanistan,” he said. “The digital rial is centralized and under CBI control making it untraceable."
The economic expert further explained, "When the digital rial is used in cross-border trade trust in the currency within the country also gets a boost."
Earlier, in order to eliminate currencies such as the dollar and euro from Iran-Russia trade transactions, the symbol of ruble and rial transactions was introduced and traded in the interbank market.
Last year, the Money Reserve Supervisory Board approved 10 billion crypto rails to be minted for use in a pre-pilot phase.
The CBI said that it has the infrastructure for the crypto-rial that 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 expand financial inclusion and function as a powerful tool for the CBI to compete with other stable coins globally.
The CBI earlier provided some details about the project in a draft on the crypto-rial whitepaper. Even though the document contains valid information it does not really address concerns raised by academia and economists.
The CDBC is set to be used for micropayments inside the country, but analysts say businesses are yet not prepared to accept the new e-currency. Moreover, users' familiarity with digital wallets and its security needs to be promoted before it is introduced.
