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Iran's crypto rules: what happens behind closed doors

Under pressure for several months behind the schedule, the Central Bank of Iran finally published a draft structure on the legality of cryptocurrency at the end of January and welcomed the reviews.

While some view the framework as a step forward, most members of the growing local crypto community are unhappy with most of the specifics. They believe that this structure can seriously limit people and companies working in the fast-growing area, if it is implemented in its current form.

Among other things, the structure proposes to prohibit the use of global cryptocurrencies and various tokens as methods of internal payments; requires the exchange of cryptocurrency for obtaining permits, therefore, new opportunities are opened for rent seeking in a country that already has too much; and often uses the word "prohibited", which may entail the threat of criminal prosecution.

So, the local community quickly took steps to improve it.

On March 9, more than three dozen community members sent their proposals to the central bank in the form of a joint document, in which 51 problems were identified in a 13-page draft of the regulator.

However, at least for the moment, they can do little. The fate of their existing enterprises, promising ideas and a passion for decentralization is largely in the hands of larger and extremely complex centralized power structures.

The issue of sanctions

This is because money has become a security issue in Iran.

The government of Iranian President Hassan Rouhani at the beginning of April 2018 "unified" the country's dual exchange rates in an effort to support the national currency, which is sharply declining due to fears of a return of US sanctions. Within a few days, the central bank was ordered to impose a general ban on cryptocurrencies by order of the government in order to mislead efforts to prevent further capital outflows.

In early May, President Donald Trump unilaterally abolished Iran’s nuclear deal with world powers and imposed “the toughest sanctions against the Islamic Republic. This only aggravated the currency crisis in Iran and led to the fact that in the following months the rial reached several consecutive record lows.

In addition, dozens of currency traders were arrested and sentenced to long prison terms and huge fines, while several high-ranking financial offenders, including a man named “Sultan of Coins” due to his accumulation of gold coins, were executed.

On the other hand, the Iranian authorities see the possibility of cryptocurrency because of its ability to challenge the application of extraterritorial restrictions. Be that as it may, people actually working on current local projects know that they cannot — and are not intended to circumvent sanctions.

Rouhani personally attended several cryptocurrency summits, the central bank created a rival-supported sovereign cryptocurrency to expand digital banking operations, and Iran’s leading banks launched gold-plated cryptocurrencies to sell their bad assets and generate liquidity.

Regulatory issues

Against this background, any object that has any relation to cryptocurrency – up to 28 – wants to take part in the action. After the central bank, the following major organizations include the Securities and Exchange Organization, the Supreme Council on Cyberspace, the Ministry of ICT, the Parliament, the Ministry of Industry, Mines and Commerce, the Ministry of Energy and the Customs Administration.

It should be noted that these objects belong to different, sometimes competing groups, and each has its own opinion on how or should cryptocurrency be regulated.

In recent months, there has been talk that the cabinet may have the last word when adopting cryptocurrency rules. If this happens, it can be a simplifying factor in that it can prevent many lower level objects from trying to keep their hand afloat. But at the same time, it weakens the authority of the central bank and emphasizes the independence it so desperately needs.

The fact that many organizations are trying to express their opinion about the rules of cryptocurrency does not cancel the restrictive possibilities of the central bank, but affects its ability to legalize or otherwise support activities in this area, said Said Khoshbakht, general director of the distributed account book in Tehran. Technological solutions from Areatak.

“In other words, we have one rule: everyone needs to be on board for something to be implemented, while only one has to be resisted to stop the movement,” Khoshbakht, who acted as an advisor to Informatics Services Corporation associated with the central bank.

He believes that the cryptocurrency community of Iran needs to learn how to lobby – “in a positive sense” – since at present it has no effective connections with any of the decision makers.

This, he said, may include work on the adoption of constructive standards, the elimination of problems experienced by law enforcement agencies and the judiciary, and the support of government structures, if necessary.

“Ultimately, I believe that the central bank is Iran’s best choice for regulating cryptocurrency,” said Khoshbakht.

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