Gold-backed digital currency unlikely to improve Iranian economy in near future
Iran’s decision to launch a gold-backed cryptocurrency in a bid to circumvent crippling sanctions imposed by the United States is unlikely to bear economic fruit, analysts argue.
In the presence of senior Iranian banking representatives and government officials, Iranian fintech company Kuknos recently announced the creation of a digital coin called PayMon (after the word for “covenant” in Farsi). Four partner banks—Bank Mellat, Bank Melli Iran, Bank Pasargad, and Parsian Bank— joined the venture whose launch came just days after Iran’s Central Bank released a draft of new cryptocurrency regulations and overturned a previous nationwide ban on digital currencies.
The PayMon could be an attempt to skirt the SWIFT banking platform, a network for international money transfers that suspended Iranian financial institutions after Washington re-imposed sanctions on the Islamic Republic.
Sainu Nannat, CEO of the London-based Blockchain Expert website, notes that while cryptocurrency-based transactions can theoretically be conducted under the radar, Iran is unlikely to escape the wide-ranging effects of the financial penalties.
“Globally accepted cryptocurrencies will have an impact in the future,” he conveyed to The Media Line. “Now they’re in a very premature stage but if a considerable portion of transactions is shifted to crypto, countries and authorities will gradually lose control.”
According to Nannat, the most important factors that determine whether a new cryptocurrency is widely adopted are reliability, stability and utility—the latter referring to how people and businesses use the currency on a day-to-day basis.
“In Iran there is reliability as [the PayMon] is issued by the authorities and backed by banks and institutions,” he elaborated. “Stability can be achieved if it’s completely backed by gold. But utility is still a problem.”
For this reason, other analysts doubt that Tehran’s financial experiment will have any tangible effects.
“I do not see this Iranian cryptocurrency solving any problems whatsoever,” Dr. Alex Coman of the Adelson School of Entrepreneurship at the Interdisciplinary Center in Herzliya (IDC) told The Media Line. “The reason they are coining their own currency is because they don’t want people to use bitcoin or some other cryptocurrency that they do not control.”
Dr. Coman notes that U.S. sanctions are particularly effective in part due to the CUSIP system, an alphanumeric financial security framework owned by the American Bankers Association that plays a pivotal role in facilitating international trade.
Last month, the U.S. Congress introduced draft legislation aimed at curbing Tehran’s digital currency ambitions. The “Blocking Iran Illicit Finance Act” includes provisions that impose penalties on U.S. citizens, corporate entities and foreign nationals that provide any kind of support for the development of an Iranian cryptocurrency.
“Whether [Tehran] conducts [internal affairs] with paper money or crypto-money it makes no difference. The question is: How do they trade?” Dr. Coman asked rhetorically. “The best way for [the Iranians] to circumvent sanctions is to give oil or gold for goods and I think the Iranians are quite competent at doing that.”
Indeed, Turkey has been accused of helping the Islamic Republic evade sanctions by exchanging billions of dollars of gold for Iranian natural gas and oil.
Beau Barnes, a U.S. attorney at the Kobre & Kim law firm who specializes in disputes involving digital assets, emphasizes that cryptocurrencies are increasingly being employed by sanctions evaders with a view to dodging highly-regulated financial institutions.
“Transactions via cryptocurrencies…can be executed anonymously and on a peer-to-peer basis so no central authority can block one,” Barnes explained to The Media Line. “But it is difficult to say if cryptocurrencies are effective at circumventing sanctions. On one hand, law enforcement authorities report that cryptocurrencies increasingly feature prominently in criminal schemes around the world, but in recent months the crypto industry has become more aware of U.S. sanctions compliance and has tightened controls on exchanges.”
Like Iran, Venezuela has also attempted to avoid U.S. sanctions by accessing international markets via blockchain platforms. Last February, the Maduro government launched the controversial oil-backed Petro (PTR) cryptocurrency, which failed to get off the ground.
Despite the growing popularity of digital currencies, Barnes believes that most potential investors and end-users will stay away from the PayMon out of fear of incurring U.S. penalties.
“If it becomes operational, whether it has a significant impact on the Iranian economy will depend on widespread adoption of the PayMon as a medium of exchange for imports and exports,” Barnes said. “But it is far from a sure bet that commercial parties in Europe and elsewhere will be comfortable with the risks that would come with conducting large commercial transactions via a new cryptocurrency.”