The Central Bank of Iran (CBI) plans to launch a central bank digital currency (CBDC) to modernize the nation’s financial system and combat international sanctions.
Mohammad Reza Farzin, CBI governor, announced the move on November 25 at the Tehran Modern Banking and Payment Systems Conference. Innovation is key to ensuring a resilient financial infrastructure.
A cornerstone of Iran’s effort to update its banking sector, the digital rial has been under development since 2018. The CBDC, said Farzin, is meant to keep Iran’s financial system up to date with international standards while making it available to its citizens. He stated:
“Our innovation priority focuses on countering the external pressures and guaranteeing the continuity of the financial system,” said the Central Bank of Iran.
The digital rial was built on open-source Hyperledger Fabric technology and completed a ‘pre-pilot’ phase earlier this year with the help of several key Iranian banks. In June, the CBI launched its first retail CBDC pilot program on Kish Island, a free trade zone popular with millions of tourists yearly. Domestic retail CBDC is currently being developed for non-intermediate functions.
However, Farzin identified ways to minimize the effect of international sanctions on Iran’s economy. It has also integrated Iran’s ACU payment system with Russia’s MIR system in October, which has widened the range of cross-border payment options. Farzin stated:
“Our ACU-MIR connection exemplifies our willingness to apply creative financial approaches to continue and increase our economic relationships.”
Of note is Iran’s domestic Shetab payment system, which can process transactions in less than two seconds. Discussions are already afoot to integrate Shetab further with MIR, Russia’s financial system.
Iran also tried CBDC and cooperated with Russia on the gold-backed stablecoin. But they’ve faced challenges, as cryptocurrency exchanges have been slapped with heavy penalties for transactions with Iran under U.S. sanctions.
Iran’s upcoming launch of the digital rial and its work with Russian payment systems highlight a strategic shift to weather the effects of sanctions and promote financial independence. Utilizing CBDC technology and fintech solutions themed to the cross-border, the Central Bank of Iran will strengthen its economy as a more resilient and contemporary financial system platform.
