Iran Launches Central Bank Digital Currency Scheme With Local Banks And Shops

Iran has begun experimenting with a central bank digital currency (CBDC), launching a pilot scheme in partnership with two local banks.

The launch of the Ramzrial (digital rial) by the Central Bank of Iran places the country among the digital currency frontrunners in the region.

Only a few countries have fully launched a CBDC, including the Bahamas, Jamaica and Nigeria. Around 26 other central banks have run pilot projects, according to the Switzerland-based Bank for International Settlements, which also says most central banks around the world are at least looking into the area.

For most countries, the main purpose of a CBDC is to make international trade more efficient. For Iran that issue has added resonance due to the international sanctions it faces.

In an effort to skirt some of the effects of U.S. sanctions, Tehran has been looking for ways to reduce its reliance on the U.S. dollar. In early August, it tested the use of a cryptocurrency for international trade, with a $10 million transaction. Since then, however, there have been no reports of similar trades.

The launch of a CBDC marks a further step in Iran’s experimentation with digital currencies.

CBDCs are distinct from better-known cryptocurrencies such as BitcoinBTC
or EthereumETH
, in that they are issued by states rather than private institutions. While cryptocurrencies have been extremely volatile over the past year, the value of CBDCs should not move around any more than a country’s conventional currency.

Local buy-in may be hard to achieve

Iranians are no strangers to cryptocurrencies. Indeed, the scale of crypto mining activity in the country has at times put the electricity network under severe pressure and led to widespread blackouts.

The plans for the Ramzrial were announced in January, when a central bank official was cited by the local Ibena news agency saying a CBDC had been approved earlier that month. In June, central bank governor Ali Saleh Abadi said the currency would be launched in September.

That deadline has been met, with Abadi saying in recent days that a limited number of people had given 1 billion tomans ($311,000) by two of the country’s larger financial institutions, Bank Melli and Mellat Bank, and that two shops had been designated for the use of the currency.

Many aspects of this pilot scheme remain unknown. It is not clear, for example, how many people are involved in the trial, who they are, on what basis they have been given the money, or what they can spend it on.

The Ramzrial essentially works as a digital version of a regular Iranian rial banknote. However, as with any digital product, its use can be easily tracked by the authorities. As the recent widespread demonstrations around the country over the death in police custody of Mahsa Amini have made clear, many locals are distrustful and resentful of the Islamic Republic. In that environment, widespread adoption of the Ramzrial might not be possible. Many Iranians are likely to shun a tool which could form part of a wider surveillance system by the state.

Other Gulf states test the water too

Iran is not the first Gulf state to trial a CBDC, but it appears to be the first one to launch a retail version that can be used by individuals, as opposed to wholesale versions which are restricted to use by financial institutions.

In 2019, the central banks of Saudi Arabia and the UAE launched Project Aber, to test the viability of a joint digital currency for cross-border trade. They subsequently said the pilot had been successful, although no wider follow-up scheme has yet been announced.

The UAE was also involved in another pilot scheme in 2021, the mBridge project with the central banks of China, Hong Kong and Thailand.

Other Gulf countries have been more cautious, although all have expressed interest in the idea, to a greater or lesser extent.