crypto strategy

Crypto for foreign trade: what do we know about Iran’s new strategy

With the Ministry of Commerce officially approving the use of cryptocurrencies for foreign trade, Iran will become the first such adopter in the world.

The obvious problem with the news is that the country’s innovative policy is obviously aimed at circumventing the financial sanctions that have hampered its participation in the global economy for many years.

These circumstances set an ambivalent tone for the Iranian experience – while for some it could prove crypto’s emancipatory ability to evade the all-too-real hegemony of US political will and institutions. international financial institutions that enforce it, diehard crypto skeptics could get the proof they need for their prophecies about decentralized digital assets as the weapon of choice to disrupt the fragile global order.

Ethical debates aside, it’s still curious to know exactly how this strategy will work, what influence it will have on Iran’s trading partners, and what challenges it will draw from hostile law enforcement.

The road to adoption

The first public announcement of a trading system allowing local businesses to settle cross-border payments using cryptocurrencies in Iran was in January 2022. At the time, Iran’s Deputy Minister of Industry, of Mines and Commerce, Alireza Peyman-Pak, had spoken of the “new opportunities” for importers and exporters in this type of system, the fruit of a joint action by the Central Bank of Iran and the Ministry of Commerce, should provide :

“All economic actors can use these cryptocurrencies. The trader takes Ruble, Rupee, Dollar or Euro, which he can use to get cryptocurrencies like Bitcoin, which is a form of credit and can pass it on to the seller or importer. […] Since the cryptocurrency market is done on credit, our economic actors can easily use it and use it widely.

In August, Peyman-Pak revealed that Iran placed its first import order using crypto. Without any details on the cryptocurrency used or the imported goods involved, the official claimed that the $10 million order represents the first of many international exchanges to be settled with crypto, with plans to accelerate it throughout. throughout September.

On August 30, Commerce Minister Reza Fatemi Amin confirmed that detailed regulations had been approved outlining the use of cryptocurrencies for commerce. Although the full text still cannot be obtained online, local businesses should be able to import vehicles into Iran and a range of different import products using cryptocurrencies instead of US dollars or euros.

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Meanwhile, the local business community has expressed concerns about the possible design of the policy. The head of the group of Iranian importers and representatives of foreign companies, Alireza Managhebi, pointed out that stable regulations and infrastructure should be prepared in order to be able to successfully use cryptocurrencies for imports. It also has the possible threat of the new payment leading to the emergence of rent-seeking corporate groups.

How would that work?

Speaking to Cointelegraph, Babak Behboudi, co-founder of digital asset trading platform SynchroBit Hybrid Exchange, said that although the official policy has only been approved in recent years, the Iranian government and companies use crypto as a payment method for a few years. now.

But, there are a series of reasons why the government has decided to recognize such practices nationwide, such as the disappointment of Iranian negotiators in reaching a win-win agreement with the West on the nuclear deal, frustration in the economy and hyperinflation in the domestic market.

The emergence of the Chinese digital yuan and the Russian-Ukrainian geopolitical conflict also greatly influence such a decision, Behboudi added.

There remains the question of the effectiveness of the new strategy. Almost all potential foreign partners will find it difficult to complete crypto transactions because, unlike Iran, most countries do not have a legal framework to use crypto as a method of business payment or, at worst, ban it outright. The pseudonymous nature of Bitcoin (BTC) and other mainstream cryptocurrencies does not leave prospective partners overly assured of their invisibility from US financial authorities.

This leaves foreign companies with two possible options, Behboudi believes. They could either use proxy companies in crypto-friendly jurisdictions to convert crypto to fiat, or use the services of third-country companies that trade with Iran, such as Russia, Turkey, Iran. China, the United Arab Emirates and others.

Christian Contardo, a global trade and national security lawyer with the law firm Lowenstein Sandler LLP, considers the range of potential partners for Iran to be rather limited. The ease of crypto transactions can facilitate legitimate commerce, especially in regions where traditional banking services may be inconvenient or unreliable. But, due to the regulatory regimes involved, large, legitimate business entities are unlikely to transact crypto with Iranian counterparties “unless they seek to hide their involvement in the transaction,” he adds. .

Allies and enforcers

Until now, reports of circumvention of sanctions with crypto in Iran have been rather rare. While Binance received no allegations after reporters claimed Binance was serving Iranian customers, another major crypto exchange, Kraken, came below the US Treasury Department’s Office of Foreign Assets Control investigation in 2019 for the same reasons. At least one individual is currently accused of sending over $10 million in Bitcoin from a US-based crypto exchange to an exchange in a sanctioned country.

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Contardo is sure that law enforcement, the United States in particular, will step up their oversight of transactions related to countries like Iran. And even if, in practice, it is almost impossible to follow all the important transactions, they always have all the tools they need:

“Law enforcement agencies and even commercial investigation services have multiple sources of information to identify the parties involved in a transaction. Once this information is aggregated and the parties identified, the evidence on the ledger forms a strong case.

Given recent announcements from Russian officials, who are also actively exploring the potential of using crypto for cross-border payments, Iran’s strategy could initiate the digitization of a parallel market, which would include sanctioned countries and nations that are willing to trade with them. . Behboudi links this possibility to the further development of central bank digital currencies (CBDCs):

“The rise of CBDCs, such as the digital yuan, ruble, rial and lira, can minimize risk if these countries can manage their transactions through bilateral and multilateral agreements, allowing companies to transact with each other using their CBDCs.”

So, in a way, Iran’s innovative strategy of adopting crypto as a cross-border method doesn’t change much – unless the use of decentralized currencies as a mode of payment for private businesses is allowed. – this loophole would attract a limited list of nations that did not hesitate to trade with Iran earlier.