As US economic sanctions on Iran takes effect, SWIFT has succumbed to pressure by US regulators to withdraw its services from Iran. SWIFT, a Belgium-based provider of secure inter-banks messaging services with operations spanning over two hundred countries reached the decision following penalty threats by US authorities.

Cutting off Iran’s cross-border transactions

SWIFT’s actions will derail Iran’s cross-border banking services which would in effect suffocate the Islamic nation’s import and export sector. The US Treasury secretary, Steven Mnuchin applauded SWIFT’s actions terming it as “the right decision to protect the integrity of the international financial system.”

Iran developing rial-backed token

To mitigate the effects of the latest disconnection by SWIFT and the larger US-imposed economic sanctions, Iran is opting for blockchain solutions. Ironically, Iran will be turning to digital assets despite earlier banning all cryptocurrency-related operations in the country.

In April this year, the nation’s central bank restricted all commercial banks in the country from facilitating crypto-related transactions. This was a risk-averse measure aimed at combating risks of digital theft for cryptos, crypto’s high price volatility and curbing money laundering activities associated with digital assets.

In an interesting turnaround, the nation’s central bank has subcontracted the Informatics service Corporation (ISC) to develop a state-owned cryptocurrency backed by the country’s official fiat currency, the rial.

Evading economic sanctions

The virtual coin that is yet to be named, upon approval by the central bank, will be used to bootstrap the nation’s struggling economy and circumnavigate US sanctions. According to the CEO of ISC, Iran’s Central bank will issue the coin.

Through blockchain, the technology that underpins cryptocurrencies, the coin will be distributed to commercial banks to be tested for settling bank payments and also as a payment tool. This will happen during the piloting stage of the central bank-backed token. After the test, authorities will then decide whether the token together with the underlying blockchain technology are able to power Iran’s financial system.

Iran joins the list of other rogue nations like Venezuela and the Marshall Islands that have gone the crypto-way to evade punitive US economic sanctions. It is not yet clear whether cryptocurrencies will live up to the countries’ expectations, but looking into the Venezuelan case, a little diplomacy may have been appropriate.