Iran's Crypto Regulations: What's Happening Behind Closed Doors

Under pressure for being months behind schedule, the Central Bank of Iran finally published a draft framework on the legality of cryptocurrencies in late January and welcomed feedback.

Among other things, the framework proposes banning the use of global cryptocurrencies and various tokens as methods of domestic payment; requires cryptocurrency exchanges to obtain permits, therefore opening a new avenue for rent-seeking in a country that has already too much of it; and uses the word "Forbidden" a lot, which could entail the threat of criminal prosecution.

Within days, the central bank was directed to implement a blanket ban on cryptocurrencies at the behest of the government in a misguided effort to prevent further capital flight.

On the other hand, Iranian authorities see an opportunity in cryptocurrencies due to its potential to challenge exertion of extraterritorial restrictions.

Rouhani has personally attended several top-level meetings on cryptocurrencies, the central bank is establishing a sovereign rial-backed cryptocurrency to expand digital banking operations and Iran's top banks have launched a gold-backed cryptocurrency to sell their bad assets and generate liquidity.

It is worth noting that those entities belong to different, sometimes rivaling factions and each has their own opinions about how or whether cryptocurrencies should be regulated.

In recent months, there have been talks that the cabinet may have the final say on passing cryptocurrency regulations.

The fact that so many entities are trying to have a say about cryptocurrency regulations does not negate the central bank's restrictive capabilities, but it affects its ability to legalize or otherwise support activities in this field, believes Saeed Khoshbakht, CEO of Tehran-based distributed ledger technology solutions firm Areatak.

He thinks Iran's cryptocurrency community needs to learn to lobby - "In its positive sense" - since it currently has no effective links to any of the deciding entities.

"Ultimately, I believe the central bank is Iran's best bet for regulating cryptocurrencies," Khoshbakht said.