Control of the U.S. dollar and the global financial system that depends on it gives the American government an incredibly powerful tool in shaping international affairs. As such, it is not surprising that its geopolitical rivals around the world will try to exploit the invention of cryptocurrency to take the USD down a peg. The latest example comes from Iran that now wants to create a digital token backed by gold.
Central Bank of Iran Approves Gold Backed Token
On Saturday, July 13, Tehran-headquartered Mehr News Agency reported that the country’s first cryptocurrency issued under permission of the Central Bank of Iran (CBI) is set to be unveiled. This was according to an announcement by an official from the Iran Chamber of Commerce, Industries, Mines and Agriculture, a non-profit institution established to facilitate economic growth and development in the country.
The official, Shahab Javanmardi, said that the indigenous digital coin will be mined by a consortium of private Iranian IT firms in accordance with the agreement of the CBI and also called on the government to issue regulations for the country’s crypto mining sector. He claimed that “the Iranian cryptocurrency is backed by gold but its function is similar to foreign rivals.” Furthermore, he revealed that “the domestically encrypted money is to ease optimal use of Iranian banks’ frozen resources.”
Iran has reportedly been preparing to launch its own cryptocurrency for a long while now. Last July state-controlled media also claimed that a large number of homegrown Iranian tech companies were developing such a project in cooperation with the CBI. At the same time, the Iranian government has also made it harder on its own citizens to mine and trade cryptocurrency, with limited success.
Tools for Bypassing American Sanctions
Cryptocurrencies sanctioned by the government or even directly issued by central banks are not a new concept. Various countries around the world have floated the idea or claimed to have tested it in some capacity. Sweden, for example, is known to be probing the creation of an e-krona, its version of central bank digital currency (CBDC), with the help of private blockchain development companies. However, while the Scandinavian country is considering the move due to its ability to support a transition to a cashless society and other economic factors the Iranian goal for its own crypto is very different.
By imposing economic sanctions on other nations the U.S. can deter them from taking actions it disapproves of or even brings an enemy country to its knees without firing a single shot. Iran has been on the receiving end of various American sanctions for decades now and the development of local cryptocurrency needs to be seen in this context. Simply put, the main purpose of any Iranian digital asset will be to bypass the established banking and financial system in order to evade economic sanctions.
The prime example of a cryptocurrency created specifically for bypassing financial sanctions is the Venezuelan petro. Like the purported Iranian token, it is also a resource-backed digital asset, just with mainly oil instead of gold. When president Nicolás Maduro introduced the petro to the public on TV back in December 2017, he stated that it would allow the country to “advance in issues of monetary sovereignty”, and make “new forms of international financing” available to Venezuela.
In reality, these promises have failed to materialize so far and many consider the petro nothing more than a scam run by a corrupt government. It was of course also not helped by the U.S., which used all its powers to target the oil-backed coin. American citizens were forbidden from investing in it, and earlier this year the Treasury Department imposed sanctions on a Russian bank which was the primary international institution financing the petro’s launch.
Washington Must Lead International Crypto Race
All of these new crypto developments are not taken lightly in the U.S. which knows the power it may lose if they actually come to pass. Just a few days ago the Foundation for Defense of Democracies (FDD), a right-wing think tank based in Washington, DC, has published a report warning American policymakers about this threat.
The FDD paper details that Russia, Iran, and Venezuela have initiated experiments that their leaders admit are tools to offset U.S. financial coercive power. It claims that the petro serves as a case study for other regimes to learn what not to do and that Russia and Iran are strong allies in a plan to develop a digital currency that could be used for trade outside the SWIFT financial messaging system.
The report also focuses on America’s main trade war rival, China. It explains that the country is wary of the ever-present threat of sanctions against its officials. While China is less threatened by sanctions than other adversaries at the moment, the FDD notes that displacing American influence in the global financial system is a Chinese national priority. It warns that Chinese engagement may be the biggest variable in sanctions resistance efforts. “China’s buy-in, if it involved moving its trade onto a blockchain platform outside the conventional system, would be a game-changer.”
The think tank finds that technology has created a potential pathway to alternative financial value transfer systems outside of U.S. control. “Washington, therefore, must understand the benefits and threats posed by new financial technologies, maintain the integrity of global finance, and cultivate the expertise and influence to lead in what is becoming an international crypto race.” This may help explain the Trump Administration’s recent interest in cryptocurrency.