Iran to Launch Public Pilot for Digital Currency on Kish Island

Iran to Launch Public Pilot for Digital Currency on Kish Island

The Central Bank of Iran (CBI) has officially announced the public pilot launch of the digital rial, the country’s central bank digital currency (CBDC). This pilot program will commence on June 21, coinciding with the start of the Iranian calendar month of Tir.

Digital Rial to Debut on Kish Tourist Island

The rollout of the digital rial will take place on Kish Island, a well-known tourist destination in the Persian Gulf and a free trade zone that allows visa-free entry for many international visitors. The digital rial aims to facilitate cashless transactions on the island by enabling users to make payments simply by scanning a barcode, eliminating the need for physical currency or bank cards. This public launch follows a successful pilot program conducted in 2023.

Regional and Global Context of CBDC Initiatives

Iran is joining a broader regional trend of exploring CBDCs. For instance, Israel recently initiated its own digital shekel test for domestic payments. Israel’s central bank is providing a sandbox environment and API layering to engage financial institutions, fintech companies, and other stakeholders in the testing phase.

China has already made significant progress with its digital yuan, which began pilot testing in 2019. By February 2024, over 29 million digital wallets had been created in Suzhou alone, facilitating transactions worth over $416 billion in 2023.

Concerns Over Sanctions Evasion

The development of Iran’s CBDC has raised concerns about potential use to evade U.S. sanctions. In February 2024, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on the Informatics Services Corporation (ISC), a CBI subsidiary responsible for developing the digital rial and other payment systems. OFAC also sanctioned two firms in Dubai and one in Turkey for procuring technology on behalf of ISC related to information security, which is controlled for national security and anti-terrorism reasons.

Iran’s Strategic Alliances and the Role of BRICS

Iran’s membership in the BRICS group has driven efforts to collaborate on alternative payment systems and digital currencies as substitutes for the U.S. dollar. This aligns with Russia’s strategy to promote local currencies and reduce reliance on the dollar, especially after sanctions restricted their access to the Swift international transaction system.

Iran and Russia are partnering on a gold-backed CBDC designed for cross-border payments, further raising concerns about the digital rial’s potential use in sanctions evasion. This collaboration underscores the geopolitical implications of CBDC development and the ongoing efforts to create financial systems that bypass U.S. sanctions.

Conclusion

As Iran moves forward with the public pilot of its digital rial on Kish Island, it joins a growing list of countries exploring the potential of CBDCs. While this initiative promises to enhance financial inclusion and streamline transactions, it also brings significant geopolitical and regulatory challenges, particularly concerning the evasion of international sanctions.

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