How Does Islamic World Threaten American Crypto Stability?
RegulationBit News Today2 min read
In May, President Donald Trump announced that the United States would withdraw from the 2015 Joint Comprehensive Plan of Action (JCPOA), the Iranian nuclear deal. Trump, who has frequently criticized the agreement, decided to reinstate American nuclear sanctions on Iran after wind-down periods of 90 and 180 days.
U.S. reimposes sanctions on Iran
Iran has been disconnected from the international banking system due to past sanctions, including a ban on using the SWIFT network for financial transactions. Tensions have grown as Washington restored sanctions, with a prohibition on acquiring U.S. dollars taking effect in August and oil sanctions scheduled for November.
Iran explores state-backed crypto as a sanctions workaround
In light of the U.S. withdrawal from the Iran nuclear agreement and the reimposed sanctions, Iran has been looking into cryptocurrency as a potential tool to circumvent the economic sanctions that restrict its ability to use the SWIFT international payments system.
At the end of April, Information and Communications Technology Minister Mohammad Javad Azari-Jahromi announced that a pilot model of a state-backed cryptocurrency had been prepared through a partnership between his ministry and Iran's central bank. Parliamentary Economic Commission Chairman Mohammad Reza Pour-Ebrahimi has also suggested that the country may explore the use of cryptocurrencies to evade sanctions and to bypass U.S. dollar transactions.
The digital currency would tokenize and back the rial, helping to facilitate internal and international payments before American sanctions took effect on August 7.
Iranian citizens turn to crypto amid economic crises
As escalating tensions with the U.S. heighten fears of an even more severe economic crisis in Iran, many residents have sought refuge in cryptocurrencies to safeguard their assets against inflation and protect against further declines in the national currency's value.
According to Mohammad Reza Pourebrahimi, who chairs the parliamentary economic commission, citizens have sent $2.5 billion in digital currencies abroad.
At the start of 2018, Iran saw a record increase in peer-to-peer rial-to-bitcoin trading amid widespread protests over socio-economic conditions. As the August 7 implementation of U.S. sanctions approaches, the rial has further weakened, trading at an all-time low of 112,000 per U.S. dollar on the black market compared to the central bank's official rate of about 44,000 per dollar.
Islamic finance principles and regional bans
While Iran's government looks to leverage cryptocurrencies to skirt upcoming U.S. sanctions, several Islamic economic principles and national regulations cast uncertainty on the future of digital assets in the region.
In late April 2018, the Iranian Central Bank prohibited all domestic financial institutions from handling cryptocurrencies, a decision aligned with the country's efforts to comply with the Financial Action Task Force on Money Laundering's (FATF) action plan.
Islamic economists broadly prohibit anything not generated through labor, holding that profits cannot be made out of thin air.
Dar al-Ifta, the main Islamic legislative body in Egypt, issued a religious ruling designating commercial bitcoin transactions as haram, or forbidden under Islamic law. In January 2018, Egypt's central bank cautioned the public against trading virtual currencies like bitcoin because of their extreme risk, while the Central Bank of Kuwait has barred the financial institutions it oversees from trading cryptocurrencies. Deploying a digital currency involves numerous unresolved challenges, including intricate ties between the government and the central bank as well as the enforcement of Islamic law.
