The use of cryptocurrencies by governments is becoming more widespread every day. Recently the Iranian government has allowed companies to use digital currencies to purchase foreign goods. Tehran hopes to circumvent U.S. sanctions with this innovative tool.
Innovative solutions of Teheran
The Iranian authorities have allowed local companies to pay for imports with cryptocurrency. This was reported by the news agency Tasnim, citing statements by Iranian Industry Minister Reza Fatemi-Amin, made at the exhibition of the automotive industry in Tehran.
For example, Iranian businessmen can now import cars using cryptocurrency instead of U.S. dollars or euros for payment, the minister said. Under the agreement between the Ministry of Industry and the Central Bank of Iran, imports from abroad can be processed using cryptocurrencies.
In early 2022, the Central Bank of Iran (CBI) and the Ministry of Commerce reached an agreement to connect the CBI payment platform to the market system. It will allow businesses to make international payments using cryptocurrencies.
The first import order using cryptocurrency as a payment mechanism was filed in Iran, according to the president of the country’s Trade Promotion Organization (TPO), on August 9. The formal import order, according to Alireza Peymanpak, was for about $10 million.
Iran offers cheap energy, which has encouraged cryptocurrency miners recently. According to officials, each Bitcoin mining device uses as much electricity as 24 homes when fuelled by the same cheap source that is used to power homes.
Recall that back in April 2021, the Central Bank of Iran allowed the country’s financial institutions to use digital currencies to pay for supplies from abroad.
However, commercial banks were allowed to use only bitcoins and other virtual coins that were mined by miners in the Islamic Republic of Iran.
Russia may follow Iran
Russia, following Iran, may use cryptocurrencies to pay for imports. The head of the Russian Cabinet of Ministers Mikhail Mishustin commented on Iran’s decision. In his opinion, Moscow could use the experience of the Islamic Republic and also use digital currencies to pay for imports.
Moreover, the prime minister did not rule out that the Russian authorities could use bitcoin and other virtual coins also in the implementation of export transactions.
The introduction of digital assets is needed as a safe alternative to guarantee smooth payment for imports and exports, Mikhail Mishustin said at a strategy session on the development of the Russian financial system.
He drew special attention to the importance of working to ensure the technological independence of infrastructure and cybersecurity of financial institutions.
We need to intensively develop innovative solutions, including the implementation of digital assets. This is a safe alternative for all parties, which is able to guarantee uninterrupted payment for the delivery of goods from abroad and for export
In general, according to Mishustin, the joint efforts of the government and the Central Bank should be aimed at developing effective tools that meet the challenges of the new times.
Digital Financial Assets in Russia
Nevertheless it doesn’t mean Russia will start using any existing cryptocurrencies such as Bitcoin or Etherum. Formally, digital financial assets (DFA) in Russia are not considered as payment instruments : according to the law, they are more an analogue of securities or financial credit instruments. The issue, accounting and circulation of DFAs is possible only by making entries in the information system or by changing them. The issue and circulation of those assets will be carried out with the help of specialized organizations, the requirements to which will be established by the Central Bank.
Currently Bank of Russia is preparing an issue of digital ruble which will be generally similar to other cryptocurrencies such as bitcoin. It should eventually become a full-fledged means of payment. Moreover, sanctions against the Russian banking system prompted the Central Bank to accelerate the development of the digital ruble, said the first deputy chairman of the Central Bank Olga Skorobogatova on May 25th. She reminded that initially the Central Bank had planned to launch a pilot project of digital ruble on real transactions and real clients from 2024, now it is decided that the project will start in April 2023.
When transferring fiat money, a significant number of intermediaries are involved: payment systems, correspondent banks, which hold accounts and authorize payments, there may be other intermediaries, on which the success of transfers also depends, – in such long chains, there is a risk that some of the participants may slow down or suspend the operation. Now, given the restrictions that Western intermediaries have imposed on Russian accounts, this risk is particularly high.
Payments in digital rubles or any other digital currency are notable for the fact that they do not require correspondent accounts for transfers. Digital transfers involve only a company that keeps records of digital assets and two parties of the payment – the owners of two cryptocurrencies. So in total we have only three participants in this system of settlements. Therefore, the risk of transaction suspension is much lower here and it really gives some guarantee of security of transfers.
On the other hand foreign digital assets are in the regulatory field of foreign partners. This means that, being in the jurisdiction of unfriendly states, digital asset transfer operators may find themselves under sanctions pressure if they conduct transactions involving Russian companies – this may serve as a reason to suspend operations. If digital assets are issued in the Russian jurisdiction, there is a great risk of turnover of these assets. Foreign companies – potential buyers of these assets may face problems with their liquidity, as Russian or any other national digital assets are not yet widespread and widely used. In this case, digital assets are more like shares of a Russian company, and transfers in fiat currency will be more preferable for foreign partners when paying for transactions.
Though it is yet unsure how successful would be those initiatives, Iran and Russia are definitely just the first countries to give it a try, there will be many more. as the potential gains are simply too high to miss the opportunity.