Why Is Iran Turning To A New “Digital Rial”? | Crypto News – Tech Tribune France

Tehran, Iran – A national digital currency is coming to Iran, with the country’s central bank planning to launch a “digital rial” pilot project in the coming days.

The Central Bank Digital Currency (CBDC), also known as “crypto rial”, is expected to remain pegged at a 1:1 ratio to the rial, the national currency.

It is a project that officials hope can significantly increase their control over the national currency and its users while providing new opportunities for financial players.

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Hit by tough US sanctions imposed after former President Donald Trump unilaterally withdrew from a 2015 nuclear deal with Iran, as cryptocurrency soared in 2018, some officials in Tehran have seen the potential for cryptocurrencies to circumvent sanctions – although this will not be the case with the digital rial, as it will only be used inside the Iranian border.

And some of the same potential alternatives that have excited developers have raised concerns among members of the local crypto community, who fear the project could endanger privacy and security.

The digital rial will run on a platform called Borna, which was developed using Hyperledger Fabric, the open source enterprise blockchain platform established by US tech giant IBM.

It is a licensed Distributed Ledger Technology (DLT) platform, which means that only the central bank can decide which entities will have access, and also means that currency cannot be mined like Bitcoin and many other decentralized cryptocurrencies.

The structure allows a select few banks to maintain and update the network’s distributed ledger, where an immutable record of all transactions and activities is kept. Other entities may also be granted access in the future.

Bank users should be able to hand over their rials – either in banknotes or in their accounts – to the banks in exchange for the same amount of new digital rials that will be stored in their mobile phone wallets.

More transparency

According to Saeed Khoshbakht, one of the people who worked on the development of Borna, the project is unprecedented in Iran and will provide a precedent for other projects in the future.

He also said that while the project was highly centralized, it would allow more banks to get involved in the previously mentioned distributed ledger, potentially allowing for more transparency.

“For now, at least four other nodes will be designated to manage the distributed ledger. It is true that they are also banks, but instead of being concentrated in a single point, the data will now be spread over at least five points, and this number could gradually increase if the project is successful,” he said. told Al Jazeera.

Fintech companies will eventually have to offer rial-based online financial services, which means a central bank-approved indexed asset – a rial “stablecoin” – will be needed.

Although not included in its initial limited public launch later this month, Borna is also planning a competitive layer, where companies could offer services under the platform, which could alleviate bureaucracy. .

Khoshbakht added that if executed properly, Borna could also create a chance for banks and fintechs to access new sources of paid revenue, potentially overhauling the current limited paid services, which for years have been a thorn in the side. in the footsteps of cash-strapped Iranian financial service providers.

Finally, a wide variety of smart contracts, self-executing contracts that can be automatically implemented, could be deployed on the platform, which has not yet been widely used in the Iranian economy.

Potential hazards

Dozens of central banks around the world are working on their own CBDCs, and the main concern everywhere seems to be their potential impacts on citizen privacy.

In its draft document, Iran’s central bank acknowledges that confidentiality is a concern, but also points out that anonymity would add to money laundering problems.

“Selecting an optimal point between these two components may be one of the considerations in the development of the digital rial,” he said, without giving further details.

For some members of the local cryptocurrency community, potential violations of their right to privacy are huge concerns.

According to Hamed Salehi, a researcher who runs crypto and blockchain-focused media and events company BlockDays.

“This digital fiat currency can be a major step and yet another way to violate people’s privacy and social freedoms,” he told Al Jazeera.

“For example, during the [November 2019] protests, you would lose your internet and phone connection if you were in areas where protests were taking place. Now, what might happen is that in addition to that, the establishment might also restrict or block your money and financial transactions based on your activities.

Salehi also thinks the pervasive nature of malware in Iran could mean hacked phones could be used to attack the digital rial app.

Effect on economy

The digital rial could end up tied to efforts to rein in Iran’s runaway inflation, which currently stands at over 40%.

A major contributor to the country’s runaway inflation for decades has been a lack of financial discipline, which has led to uncontrolled money printing to help fill perennial budget deficits.

A digital version of the country’s currency could prove to be an economic opportunity or a threat, according to electronic banking expert Nima Amirshekari.

“If properly implemented, the project can help prevent inflation, only in the digital sector. Inflation comes from money creation, unchecked lending and unsecured money, so if you take money out of circulation and issue the same amount in digital rials, it can help inflation, provided that you cannot use the digital rial to allocate loans and credits [which would increase the amount of digital rials in circulation].”

The central bank’s deputy governor for new technologies, Mehran Mahramian, has indicated that loans are part of the process, telling state television that the digital rial could help ensure loans are invested where they are. meant to be.

But Amirshekari said the same problems that have caused large amounts of non-performing loans (NPLs), bank loans that have been repaid late or are unlikely to be repaid, another long-standing problem for Iran’s banking system. , could affect the digital rial.

“The authorities already know where the loans are going in the banking system. The problem with our PNPs is that they were taken down by people or organizations powerful enough to refrain from returning the money. The same can happen with the digital rial.

Amirshekari said one of the benefits of the project could be to increase the central bank’s knowledge and expertise on global cryptocurrencies, which would positively impact its regulatory stance.

A state of anarchy and confusion has reigned over the local cryptocurrency scene for the past few years.

A central bank directive banned credit institutions and money changers from handling crypto in 2018, and there were crackdowns on crypto exchanges, but technically there was no law prohibiting the average citizen from doing business.

“Hopefully this will teach them how to use on-chain analysis and other technical methods for surveillance, so they can write useful regulations instead of banning or banning everything,” Amirshekari said.

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Why Is Iran Turning To A New “Digital Rial”? | Crypto News – Tech Tribune France

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