The US government’s recent demands to Iran could force the country to utilize cryptocurrency like bitcoin to dodge international sanctions to trade with its allies and Russia, which could positively impact the cryptocurrency sector in the long-term.
Worsening Currency Situation in Iran
On May 21, US secretary of state Mike Pompeo demanded Iran to comply with the 12 requests he outlined during his speech at the Heritage Foundation in Washington, DC, in order to keep the nuclear treaty with the US. The 12 conditions introduced by Pompeo are:
- Release the full account of prior military dimensions of its nuclear program to the International Atomic Energy Agency (IAEA)
- Do not pursue plutonium reprocessing
- Give IAEA unqualified access to its nuclear sites
- Terminate proliferation of ballistic missiles
- Release all US citizens and citizens of US allies
- End support to Middle East terrorist groups
- Recognize the sovereignty of Iraq
- End its support for Houthi rebels in Yemen
- Withdraw Iran’s forces out of Syria
- End support for the Taliban
- End support for terrorists and militants around the world
- End threatening behaviour against its neighbors
The US government strongly emphasized that it is only willing to negotiate with to establish a new nuclear treaty if the above mentioned demands are met. If not, the US government stated that it will impose sanctions that are in orders of magnitude stricter than previous sanctions to effectively isolate Iran from the global financial network.
Consequently, the value of rial, the national currency of Iran, plunged to an all-time low against the US dollar. More to that, the Iranian government’s crackdown on the use of foreign exchanges by local residents and citizens to send money out of the country has made it virtually impossible for the Iranian people to avoid capital controls, banning residents from selling the rial.
In an interview with The New York Times, Mohsen Yekta, a university professor in Iran, stated the local financial authorities have disallowed residents from using foreign exchanges for personal businesses as well.
“Every month I send some money to my daughter in Paris. I need foreign exchange to help her out. I don’t know what to do,” said Yekta.
US dollars and other reserve currencies have become even more scarce in Iran because of the government’s decision to execute foreign money changers to ensure local citizens can no longer convert the Iranian rial for other currencies.
The New York Times reported that the Iranian government sent riot police into a bazaar and arrested several money changers. Ayatollah Nasser Makarem-Shirazi, a senior cleric, told the publication that money changers arrested at the bazaar are “ought to be executed to set an example.”
Cryptocurrency Transactions Between Russia and Iran
Earlier this week, on May 21, Iran’s Parliamentary Commission of Economic Affairs announced that the Central Bank of Iran will soon develop proposals to use cryptocurrencies to avoid international sanctions.
According to RBC, a major publication in Russia, Mohammad Reza Pourebrahimi, the head of Iran’s Parliamentary Commission of Economic Affairs [IPCEA], stated:
“[IPCEA has already] obliged the Central Bank of Iran to start developing proposals for the use of cryptocurrency. Over the past year or two, the use of cryptocurrency has become an important issue. This is one of the good ways to bypass the use of the dollar, as well as the replacement of the SWIFT system.”
Pourebrahimi added that the Russian government shares a similar sentiment as Iran and agrees with the country’s decision to use cryptocurrencies to send and receive payments to and from its allies.
“They share our opinion. We said that if we manage to promote this work, then we will be the first countries that use cryptocurrency in the exchange of goods.”
On April 6, Financial Times reported that the US government imposed toughest Russian sanctions to date, targeting individual business owners and billionaires including Oleg Deripaska, Viktor Vekselberg, and Suleiman Kerimov. At the time, treasury secretary Steven Mnuchin said that the US government will no longer be protected for taking advantage of the “corrupt” system.
In response, Deripaska said:
“Certainly the grounds for putting my name on the list of SDNs [specially designated nationals] as provided by US officials are groundless, ridiculous and absurd. I am preparing to celebrate Russian Orthodox Easter on Sunday and will then analyse the emerging situation with our lawyers early next week and provide some comments.”
It is possible that billionaire oligarchs and countries like Iran that have been excluded from the global financial network will begin using decentralized financial networks like bitcoin to send and receive large sums of money.
Already, a bank in Argentina called Banco Masventas has dropped out of the SWIFT network to process international payments in bitcoin. The bank’s principal shareholder Jose Dakak said:
“The service allows you to reduce costs associated with international transfers as there are no international banks as intermediaries. One of the actions was to contract Bitex as a strategic partner in the implementation of the Bitex platform for payments and collections operations for our clients abroad.”
If banks in Iran, Russia, and other countries that have been sanctioned by the US begin utilizing bitcoin and other cryptocurrencies to process international transactions, it could significantly increase the daily transaction volume of many cryptocurrencies and improve the mainstream adoption of digital assets.