31 Jan 2020
By every measure, US sanctions are devastating Iran’s economy. The value of the rial has plummeted by half since 2018, when President Trump began dismantling the nuclear deal and reimposing embargoes. Food prices are spiralling, and the country’s foreign currency reserves have been slashed by a fifth since 2013.
But in adversity, there is also opportunity — in Iran’s case, in the form of cryptocurrencies. For the beginner, this is money that exists only in digital form, with no central bank but a network of computers that keep a shared ledger of transactions. Payments do not go through the SWIFT system that banks use to communicate with each other, meaning that regulators cannot monitor or block them.
Cryptocurrencies’ proponents argue that they have democratised a financial system that has been dominated for too long by the dollar. Critics point out their potential usefulness for terrorists and rogue states, who can use them to gather funds and pay operatives unimpeded by the US Treasury.
Cryptocurrencies are already a popular option for Iranians looking to secure their savings as the rial tumbles. They have largely proved a good investment in recent years, with Bitcoin, the original and most famous cryptocurrency, gaining almost 30 per cent in value since the start of this year. Every shock to traditional markets seems to give cryptocurrencies an extra boost: the negative impact of the coronavirus outbreak on global stocks has helped Bitcoin rise 8 per cent in a week.
Computer mining — the method by which new cryptocurrency comes into circulation — is also popular in Iran. New coins are created when computers solve the complex equations that verify each crypto transaction.
Anyone can hook their computer up to the network to start mining money but in most places the costs of the electricity needed to power the computer outweighs the value of your mined bitcoin. Iran, though, has some of the lowest electricity prices in the world – 0.5p per kilowatt hour, compared to an average of 14.4p in the UK.
Early last year, energy shortages and blackouts prompted the Iranian government to raise prices and close down scores of mining operations. But more recently, there have been signs that the Iranian government is ready to probe the possibilities that cryptocurrencies offer. In December, President Rouhani announced that Iran would launch a national cryptocurrency, and urged other Islamic countries to do the same.
“The Muslim world should be designing measures to save themselves from the domination of the United States dollar and the American financial regime,” Mr Rouhani said during a summit with the leaders of Turkey, Qatar and Malaysia. Such a system would allow those states to trade with each other without using the dollar, and so swerving the need to settle payments through the Federal Reserve and in the full sight of the Treasury.
Last week, Iran’s industry, mining and trade ministry also reversed the crackdown on miners, issuing 1,000 cryptocurrency mining permits, a move that the country’s Information and Communications Technology Guild estimates will bring $8.5 billion into Iran’s sorely depleted coffers.
Iran’s official acknowledged interest may be new, but behind the scenes, it and other sanctioned states have been looking at cryptocurrencies for years — and, increasingly, cooperating with each other.
Russia, which has been slapped with rounds of embargoes since it annexed Crimea and parts of eastern Ukraine in 2014, hands out cheap energy to unrecognised territories in its sphere of influence, such as Transnistria and the breakaway Georgian territories of Abkhazia and South Ossetia. They are using it to mine huge amounts of cryptocurrencies. Meanwhile, Russian military intelligence officers used Bitcoin to pay the hackers who leaked Hillary Clinton’s emails weeks before the 2016 US presidential election. The Kremlin has also mooted setting up a cryptocurrency “university” in Crimea where other sanctioned states can come and learn how to use the technology.
By Hannah Lucinda Smith, The Times, 30 January 2020
Read more at The Times
RiskScreen: Eliminating Financial Crime with Smart Technology
You can claim CPD minutes for this content, by signing up to our CPD WalletFREE CPD Wallet