Iran to pilot CDBC in Kish Island starting July

In July, the Central Bank of Iran (CBI) will commence a trial of its central bank digital currency (CBDC), the digital rial, on Kish Island

On June 19, the central bank announced that banking network customers and tourists could utilize the digital rial wallet to make purchases and transfers between wallets via barcode without the need for paper money or bank cards.

Absence of intermediaries

The central bank underscored that CBDC is not utilized through bank accounts and does not necessitate interbank settlement. Upon receipt, beneficiaries can conduct transactions directly through the CBDC without needing an intermediary.

In addition to banking and payment networks, two private institutions, Mellat Bank and Tejarat Bank, will participate in the trial phase.

Kish Island, the test site, is a free trade zone with 140,000 residents and 12 million annual visitors, which presents an opportunity to evaluate the asset.

The digital rial’s programmability was also described by CBI, who referred to it as the “driving force” behind new business models, including the digital economy and e-commerce.

The central bank stated that the CBDC is designed to enhance the resilience and stability of the payment infrastructure, establish new payment tools, improve efficiency, replicate the function of electronic banknotes for small payments, and mitigate the risks associated with the proliferation of private money.

The bank further stated that the digital currency will enhance payment security and provide a user-friendly interface.

Iran and digital currencies

Iran’s CBDC has been underway since at least 2021. The currency was reportedly tested at banks and businesses in 2022, and a limited trial was initiated in 2023.

Outside of its borders, Iran may also implement digital currencies issued by its central bank. According to Rahimi Mohsen, the commercial attaché of the Iranian Embassy in Russia, Izvestia reported in May that Iran and Russia could circumvent sanctions by utilizing CDBCs.

The country maintains a somewhat anti-crypto stance despite its advanced development of a CBDC. The peer-to-peer market continues to prosper, as in many emerging and developing economies, even though local financial institutions are prohibited from handling crypto.

Furthermore, Iran permits import companies to conduct business transactions through cryptocurrency, primarily to circumvent US sanctions.