Iranian cryptocurrency: expect a second attempt?

Iran’s leadership now seems to have again decided to use cryptocurrencies to stabilize the country’s financial system. The first attempt was made in early 2019, but was unsuccessful.

The Iranian parliamentary committee on economics has developed legislation titled “Supporting Cryptocurrency Mining and Regulation of Domestic Cryptocurrency Trade”. When it is adopted, the Central Bank of Iran (CBI) will become the only body regulating the cryptocurrency turnover in the country.

This was after the meeting of the Economic Coordination Council under the President of Iran Hassan Rouhani’s Cabinet in June, where the President himself said that Iran would need to legalize cryptocurrency to protect its national interests. And that required legislatively establishing a legal basis for cryptocurrencies.

According to the law, all currently existing cryptocurrencies could be prohibited from use as a means of payment in Iran. An exception is made for the national central bank digital currency (CBDC), as well as for tokens issued by private companies and banks.

Additionally, the bill officially places the crypto industry in the competency of the Ministry of Industry, Mine and Trade – it will henceforth license the mining farms. Going forward, the licensed mining companies will be able to contact the country’s Ministry of Energy with a request to sell any surplus of electricity.

Let us be reminded that cryptocurrency mining as a type of industrial activity in Iran was declared legal in 2019, but miners were required to receive a special license. In May of this year, President Hassan Rouhani announced that cryptocurrency mining would be banned until September. After that, the authorities conducted a number of raids to identify unlicensed mining farms, due to the country’s growing demand for electricity in the summer months.

The legislation proposed means that Iran’s financial authorities are planning to launch their own CBDC. Notably, this would not be the first time. Back in early 2019, Iran made a serious attempt to fight against US sanctions with a gold-backed cryptocurrency.

Iran has been negotiating the use of cryptocurrencies for cross-border trading with a number of countries since the fall of 2018. As part of preparing its own crypto project, the Central Bank of Iran released a report on the possible legal regulation of cryptocurrency turnover, in which it considered lifting the complete ban on the use of digital money, as well as the legalization of ICO and mining.

As the head of the Iranian Trade Promotion Organization, Mohammed-Reza Modoudi, told reporters then, they had been discussing the idea of creating a gold-backed crypto with eight other countries: Switzerland, South Africa, France, Great Britain, Russia, Austria, Germany and Bosnia.

On February 4, 2019, world news agencies reported that the Iranian government launched a gold-backed cryptocurrency PayMon, the main task of which is to allow the country to trade in oil, bypassing international sanctions. According to Iranian sources, four Iranian banks worked together to issue national crypto: Parsian Bank, Bank Pasargad, Bank Melli Iran and Bank Mellat. The CBDC was supposed to be traded on its own Iranian OTC platform Fara Bourse.

The Iranian company Ghoghnoos was directly related to the launch of the unusual asset: its director Valiolla Fatemi told reporters about the plans to initially release 1 billion new cryptocoins. In his words, they would be used to tokenize the assets of financial institutions and reduce the negative consequences for the country’s economy after it’s disconnection from the SWIFT system.

The process for introducing Iranian CBDC into circulation looked like this: after approval from the Central Bank of Iran, PayMon cryptocurrency would be credited to banking institutions for payment testing, internal and interbank settlements. At the same time, the Iranian authorities decided to rid CBDC of competitors in advance: CBI had planned a ban on the use of digital money, which did not receive the approval of the local financial regulator.

Then, at the beginning of 2019, it was assumed that the main problem for PayMon would be the confirmation of the real volume of gold reserved as collateral for Iranian national cryptocurrency by independent auditors. However, later the project ran into other difficulties.

The name of Iranian state cryptocurrency – PayMon – is a Persian word for “covenant”. But PayMon is also the name of a Russian crypto project launched in early February 2018. It provided for the creation of not only its own cryptocurrency called PayMon (PMNC, Paymon Coin), but also, as the project website states, “a global platform for receiving and sending payments between users based on the P2P principle, exchanging cryptocurrencies (exchange function) and creating business applications.”

However, by the middle of 2018, the project ran out of steam and the news from its creators stopped coming. Moreover, Paymon cryptocurrency was not subject to mining, so all its coins had been issued immediately or were issued exclusively by the founders of the project. The identical scheme was used for the creation of Iranian CBDC. The maximum possible number of Paymon Coin coins in the Russian project was 1,000,000,000 pieces, same with the Iranians.

There is no confirmed information that the failed Russian project could turn into Iranian state cryptocurrency. However, observers had a strong impression that in fact it was all a scam: The Russian creators of the PayMon project tried to “wholesale” it to the Iranian authorities as an already debugged and working system. But something went wrong…