according to the Tehran Times.
The prospect of a “crypto rial” has been mooted for months now, with reports of experiments by the Central Bank of Iran (CBI) first surfacing in November 2018. Prior to that, the Iranian regime had taken a markedly less enthusiastic view of cryptocurrency, implementing a total ban in April 2018 under the rubric of anti-money laundering measures. Draft guidance released by the CBI on January 29 has now reversed that ban, although limits on the total value of crypto holdings by Iranian citizens remain in place. Gradually, the Islamic Republic is thawing in its stance towards virtual money, coming to see it as an effective vector for skirting U.S. sanctions, which were recently reinstated by the Trump Administration.
The U.S. first imposed sanctions on Iran in 1979, when billions of dollars of Iranian assets were frozen, and a trade embargo enacted, following the 1979 hostage crisis in Tehran. The West imposed fresh sanctions in the ‘80s, ’90s, and 2000s, due to Iran’s support for terrorist organizations and then its nuclear enrichment program under President Mahmoud Ahmadinejad, before the 2015 nuclear agreement brought back into the fold.
Since then, Team Trump has been much less willing to compromise and has sought to reimpose sanctions once more.
Last November, some of Iran’s banks were suspended from using SWIFT, the global financial messaging system, Al Jazeera reported. Although SWIFT does not directly process payments, it enables financial institutions to securely communicate information about financial transfers across borders. Once a nation is locked out of the SWIFT system, it struggles to pay for imported goods, or receive payment for exports. Iranian banks were cut off from SWIFT once before in 2012 under nuclear sanctions instigated by the Obama Administration. Unable to process international payments, Iran’s oil exports plunged over the following years, and the sanctions were widely credited with bringing Iran back to the negotiating table. The 2015 deal requires Iran to reduce its uranium stockpile by 98 percent, and allows for regular international inspections of its facilities.
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If cryptocurrency offers an uncertain avenue for Iran to trade internationally, more faith can be put in the fact that a block of European nations has collaborated to build a new financial mechanism for the same purpose. The Instrument in Support of Trade Exchanges (INSTEX) is a newly launched payment vehicle created by France, Germany and Britain specifically for transactions with Iran, designed to allow European companies to do business without relying on US-controlled financial channels.
Trade conducted through the INSTEX mechanism will initially focus on food, medicines and other humanitarian supplies that are theoretically outside of the purview of any sanctions regime. Even so, the US administration has already warned that any European entity trading with Iran in dollars would be subject to fines, and it is likely that only firms with no existing business ties to the United States will participate in the system.
In creating the payment channel, Europe is opting for the carrot where American foreign policy favors the stick. The Iranian regime says the channel is necessary for continuing to abide by the terms of the 2015 deal, and the European nations will be hoping the benefits of Iran’s compliance outweigh the risk of provoking Trump’s ire.
If the INSTEX mechanism can be effectively implemented, it should prove to be a more practical means of connecting Iran with Western nations than cryptocurrency, whether in the form of bitcoin or a crypto rial.