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Iran Plans National Cryptocurrency as New US Sanctions Loom

Iran may soon issue its own cryptocurrency as a way to bypass new economic sanctions enacted by U.S. President Donald Trump.

A plan to develop an “indigenous” cryptocurrency is currently on the agenda of the government’s Science and Technology Department, according to Iran’s official news outlet PressTV. Alireza Daliri, the department’s deputy head in charge of investment affairs, said on Wednesday that the project is ongoing in cooperation with the Central Bank of Iran.

“We are trying to prepare the grounds to use a domestic digital currency in the country,” Daliri was quoted as saying in the report.

The cryptocurrency would back and tokenize Iran’s national fiat currency, the rial, in order to facilitate domestic and cross-border transactions ahead of the U.S. sanctions, which go into effect next month.

The U.S. announced its withdrawal from a 2015 nuclear agreement with Iran in May alongside the reactivation of economic sanctions that will restrict Iran’s access to U.S. dollars starting from Aug. 6.

Daliri said his department aims to integrate blockchain technology with the country’s central bank over the next three months, rolling out a cryptocurrency for general implementation across domestic commercial banks.

The announcement aligns with the Iranian government’s ongoing support for developing cryptocurrency and blockchain technology.

According to the Science and Technology Department’s website, Daliri announced said at a meeting early this month that he will support “the path of creation of digital currency in the country,” adding:

“[O]ur goal is to guarantee the success of those entering this field and conclude contracts in this field.”

In April, Daliri also doubled down on a commitment to launch a “mutual cryptocurrency” that could facilitate financial payments between domestic and foreign businesses.

The reported move by Iran follows the lead of Venezuela, which launched its own oil-backed “petro” cryptocurrency – also as a way to fight U.S. sanctions. While the country’s president Nicolas Maduro has claimed successes for the token, the Trump administration has also issued an executive order for additional sanctions against the petro.

Iran currency image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.

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Central Banks Will Jump-Start the Decentralization of Money

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

Whether bitcoin or its imitators eventually achieve global ubiquity, they have already achieved success in one fundamental way: forcing humans to rethink their relationship with money and banks.

Cryptocurrencies weren’t on the ballot during Switzerland’s “sovereign money” referendum last weekend, in which Swiss citizens rejected by a ratio of three to one a proposal to end fractional reserve banking and give sole money-creation authority to the Swiss National Bank. But they were the elephant in the room.

The very presence of the crypto alternative, I believe, will eventually force economies worldwide to disintermediate banks from money, yet the direct authors of that change won’t be activist voters wielding ill-conceived referenda or crypto enthusiasts voting with their wallets.

The first phase of a transition toward a true “money of the people” will be implemented by central banks themselves, striving and competing to remain relevant in a post-crisis, post-trust, digitally connected global economy.

That might disappoint adherents of the cypherpunk dream who birthed bitcoin. But the good news for those who want governments out of money altogether is that when currencies become digital – and enjoy all the bells and whistles of programmable money – they will foster more intense global competition among themselves.

When smart contracts can manage exchange rate volatility, for example, people and businesses involved in international trade will not need to rely solely on the dollar as the cross-border currency of choice. This more competitive environment will ultimately open the door to non-government digital alternatives such a bitcoin.

Backlash against CBDCs

To be sure, official enthusiasm for central bank-issued digital currency, or CBDC as it has become known, has waned somewhat as the old guard of central banking has dug in its heels.

At the Bank of England, which spearheaded research into the idea three years ago, Governor Mark Carney has lately warned of financial instability if his institution were to directly provide digital wallets to ordinary citizens — a change that would, in effect, give everyone the same right to hold reserves at the central bank as regulated commercial banks.

The Bank of International Settlements – a kind of international club for central banks – has echoed Carney’s concerns, as have other officials.

This backlash, which suggests that the bank supervisory teams within central bank bureaucracies have regained ascendancy over technologists and innovators in their internal debates over CBDC, stems from a well-founded expectation: bank runs would be a real possibility.

Why hold your money at risky, friction-laden institutions paying near-zero interest when you can store at zero risk with the central bank itself and trade it automatically with other fiat digital wallet holders?

But why, also, should we care what happens to banks?

Banks are the problem

The only reason to promote digital fiat currencies is precisely to bypass the banks. Whether the currency is fiat or decentralized, banks are the problem. The technical, social and regulatory infrastructure upon which they operate is decades old and fraught with unnecessary compliance costs.

Banks maintain centralized, non-interoperable databases on outdated, clunky COBOL mainframes. They rely on multiple intermediaries to process payments, each managing their own, siloed ledgers that must be reconciled against each other through time-consuming fraud-prevention mechanisms.

All these inefficient systems, instituted to address the problem of trust, merely add to the cost of trust in the system.

“Why, in a digital age, can’t we move money around 24/7? Because we have bad middleware, and that bad middleware is existing financial infrastructure,” says Charles Cascarilla, CEO of Paxos, which is building blockchain-based trading infrastructure for the financial system.

In addition, there’s the massive political risk that comes with banks’ involvement in our payments system.

The reason why it was deemed necessary for governments to bail out the world’s banks to the tune of trillions of dollars in 2008 was that not doing so would have thrust our highly complex payments systems into chaos. The global economy would have had a cardiac arrest. It’s that threat of bringing us all down with them that gives “too-big-to-fail” banks a hold over policymaking.

Many central bankers, still smarting from the fallout from that crisis, know this is the problem. Many see real benefits in removing banks from payments and recognize that digital currencies can help. The question is how to get there without fomenting chaos.

Gradual solutions

One solution: a phased approach over time. You don’t provide CBDC to everyone at first; you start with large non-bank financial institutions, follow it up with a certain class of large corporations, then move to smaller businesses, and only make it available to individuals as a last step.

Another solution: the introduction of a unique, central bank-determined CBDC interest rate. This would be an addition to the central bank toolkit for managing money supply, which currently hinges on a combination of a policy rate imposed on banks’ reserves and interventions in the two-way market for buying and selling government securities with banks.

A separate CBDC interest rate would provide a means to calibrate the flow of money between banks and digital fiat wallets, potentially within a long-term plan to gradually shift it from the former to the latter without overly disrupting the system.

As Sheila Bair, the former Chair of the Federal Deposit Insurance Corp., argued in a recent op-ed, this new interest rate tool could enhance monetary policy, as central banks could use it to either stimulate or cool the economy. By directly affecting the rate at which people’s currency holdings grow, incentives to save or spend could be directly implemented.

Still, I don’t see developed-world central banks rushing to do this. Their relationships to commercial banks are too entrenched. And, for now at least, it’s hard for many in that system to even conceive of a monetary system that doesn’t revolve around them.

But it’s different for developing-world central banks. For too long those countries’ monetary policy has been driven by the policies of the world’s biggest central bank, the Federal Reserve. If the Fed cuts rates, foreign, inflationary money floods into their bank-centric financial systems; if it hikes rates, they face deflationary risks. In theory, a fiat digital currency could allow them to offset those forces.

Now, of course, all of this could go wrong. A new tool for profligate governments to debase their citizens’ money does not look desirable. For proof, look no further than the rogue state of Venezuela and its new, centrally controlled digital currency, the petro.

Yet that may also be what ultimately gives bitcoin, or some other viable altcoin, a chance to shine, especially as Layer 2 solutions start to help with scalability and liquidity. Central banks can’t put the cryptocurrency genie back in the bottle. Their potential embrace of digital fiat currencies will happen in an era when their citizens have a choice – they can shift to these new decentralized solutions, with increasing ease.

Whether they take over the world or not, the power of the market in a more open system of currency choice will mean that cryptocurrencies will hopefully play a vital role in forcing these politicized, centralized institutions to better manage their people’s money.

Federal Reserve image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Norway's Central Bank Mulls Digital Currency as Cash Use Declines

Norway’s central bank is preparing for a future in which it might issue a digital currency amid a slump in cash usage in the country.

Looking into the possibility, a working group at Norges Bank has released a report titled “Central Bank Digital Currencies,” which explains that, as citizens turn away from physical forms of money, the bank must consider “a number of new attributes that are important for ensuring an efficient and robust payment system.”

Already, the country’s DNB bank has stopped handling cash, with Trond Bentestuen, group executive vice president of wealth management and insurance at the bank, telling local media as far back as 2016, that only 6 percent of Norwegians use cash on a daily basis.

Further, Jon Nicolaisen, deputy governor of Norges Bank, stated in a speech last April that the role of cash “continues to diminish” as consumers move towards electronic payments, adding that “For many consumers, electronic central bank money could provide an alternative to deposit money in a bank, as cash does today.”

The new report looks at various features and purposes for a CBDC and suggests some roles that “merit further consideration,” including as an alternative to deposits in private banks (in addition to cash); as a back-up solution for the standard electronic payment systems; and to provide a suitable legal tender as a supplement to cash.

Describing blockchain-based systems as “immature,” the report further explains that the preferred model for the CBDC would be either “account-based” – centralized and stored on a database – or “value-based” – decentralized and stored on electronic chips such as prepaid cards or SIMs.

However, the authors continue:

“A CBDC raises complex issues. There is virtually no international experience to draw on. Further analysis is needed to assess the purposes of a CBDC, the types of solutions that best achieve these purposes and the benefits measured against financial and other costs.”

The authors conclude that it is “too early” to conclude whether Norges Bank should take the lead and introduce a central bank digital currency. At the same time, the working group did not identify problems that would rule out the idea.

Norwegian krone image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Fed Governor Says 'No Compelling Need' for US Central Bank Crypto

Lael Brainard, member of the board of governors at the U.S. Federal Reserve, does not see a “compelling demonstrated need” for a Fed-issued digital currency.

Speaking at the Decoding Digital Currency Conference yesterday in San Francisco, Brainard said that, while central bank digital currencies may seem to address a number of challenges associated with cryptocurrencies, they “may not withstand closer scrutiny.”

Further, with people finding easier ways to exchange digital payments directly through mobile applications and other means, American consumers are likely to receive multiple mechanisms for making electronic payments in real-time.

She noted:

“Finally, there is no compelling demonstrated need for a Fed-issued digital currency.”

Elsewhere in the speech, Brainard once again made it clear that she believes that cryptocurrencies not pose a threat to financial stability.

She noted that the central bank is actively monitoring developments in cryptocurrencies in areas such as payments policy, supervision and regulation, financial stability, monetary policy and more.

Discussing security concerns with respect to cryptocurrencies, including breaches and fraudulent activities, Brainard said:

“However, the still relatively small scale of cryptocurrencies in relation to our broader financial system and relatively limited connections to our banking sector suggest that they do not currently pose a threat to financial stability.”

The governor continued to say that adverse developments and shifts in the cryptocurrency market might lead to extreme price fluctuations, trading difficulties or even market breakdowns. In order to prevent such activities, Brainard stressed that Fed Reserve “will continue to monitor cryptocurrencies as they evolve, with particular vigilance for any signs of growing materiality to the broader financial system.”

As noted, this not the first time the Fed governor has spoken on the subject of cryptocurrencies. In April of this year, Brainard cautioned individual investors to be aware of the “possible pitfalls of these investments and the potential for losses.” She said at the time that Fed “is monitoring is the extreme volatility evidenced by some cryptocurrencies.”

Lael Brainard image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.