In Iran, power to the people – or at least to the bitcoin miners. Literally, and at the expense of everyone else. And in Nigeria, it’s not quite curtains for the cryptos, but the picture may be getting just a bit bleaker. All of which may set central bank digital currencies (CBDCs) on a path toward greater acceptance, at the expense of their volatile crypto cousins, like bitcoin.
Late last month, as reported by the Associated Press, Iran experienced a widespread blackout where millions of people were left without the power needed to conduct daily life, such as online classes. In the wake of that blackout, Iran’s government set forth what the newswire termed a “crackdown” on bitcoin data-mining centers (numbering more than 1,600 nationwide). The idea is that the data centers have been a drain on the grid, sucking up power and siphoning it away from the infrastructure’s basic functions (such, as, well, lighting things). It’s interesting to note that the crackdown on those data centers has been done at scale, and includes those centers that were operating legally (numbering about two dozen). Crypto mining has been popular in a country where economic sanctions have prevented the tapping of more traditional payment networks.
“Iranians understand the value of such a borderless network much more than others, because we can’t access any kind of global payment networks,” Ziya Sadr, a Tehran-based bitcoin expert, told the AP. “Bitcoin shines here.”
In another salvo against cryptos earlier this week, the central bank of Nigeria issued a letter to financial institutions (FIs) ordering that they immediately close crypto-related accounts. Cryptos have been prohibited there since 2017. Commentary from the central bank stated that “the very name and nature of ‘cryptocurrencies’ suggests that its patrons and users value anonymity, obscurity and concealment. The question that one may need to ask therefore is why any entity would disguise its transactions if they were legal.” As the bank noted, cryptos have been well-suited for conducting illegal activities. Volatility remains a concern, said the bank, as prices may crash to zero.
Digital Fiat As An Alternative
With those concerns in hand, it may make sense that the banks themselves are looking to digital fiat as the conduits toward more fully enabling digital payments. As reported by the Financial Tribune, Iran’s central bank is studying the issuance of “crypto-rial” as a central bank digital currency (CBDC), according to the CBI Director of Payment Systems Department.
“If issued, the crypto-rial could be used for small cashless transactions … it helps us reduce money circulation and can be used for interbank settlement,” the report quoted Mohammad Reza Mani Yekta as saying. However, Nigeria’s central bank pointed out that “it is also important to highlight that there is a critical difference between a central bank-issued digital currency and cryptocurrencies. As the names imply, while central banks can issue digital currencies, cryptocurrencies are issued by unknown and unregulated entities.” This seems to keep the door open for digital fiat, issued and regulated by the bank itself.
And that type of activity, even in countries where cryptos are frowned upon, would create a digital payments landscape that would consign cryptos to speculation, but keep units of value and commerce firmly within the traditional central bank ecosystem.
As reported late last week, the Bank for International Settlements (BIS) said that CBDCs will be available for 20 percent of the world’s population in the next three years. There’s already some digital framework in place, with guiding principles and coordination across borders. CBDCs, then, may make inroads where cryptos have yet to gain real traction – namely, in all forms of real-world commerce.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More