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The Central Bank of Iran (CBI) has announced that it will launch a public pilot of its central bank digital currency (CBDC), known as the digital rial, at the end of June. This initiative aims to transform the country’s digital economy and facilitate national micropayments.

The plan is to make the digital rial available to bank customers and tourists on Kish Island from June 21. The date was chosen because it is the beginning of the calendar month of Tir in the Iranian calendar.

Pilot project will be applied in a tourist area

Kish Island is a free trade zone and a popular tourist destination in the Persian Gulf. The government chose this strategic location to launch the pilot due to its free trade infrastructure and its popularity among international tourists.

Furthermore, Kish is one of the main tourist destinations in the Middle East, alongside Dubai and Sharm el-Sheikh. In this way, it becomes a significant point of interest for the implementation of the digital rial.

In 2021, Muhammad Javad Azari, former Minister of Information and Communications of Iran, suggested turning Kish into an exchange hub for national and international cryptocurrencies. This vision is now moving closer to reality with the launch of the digital rial pilot.

How will CBDC work?

Unlike other forms of electronic money used in Iran, the digital rial does not require interbank settlement to transfer funds between buyers and sellers. This means payments can occur more efficiently and securely.

Customers will be able to use the digital rial by scanning a barcode with special software, offering an alternative to traditional methods of paying with cash or bank cards.

According to the CBI, this innovation not only simplifies the payment process, but also increases the security of transactions. By eliminating the need for interbank settlement, the digital rial allows for a near-instant transfer of funds. This benefits both consumers and merchants.

The main objective of the digital rial is to establish a solid foundation for Iran’s digital economy by improving micropayments infrastructure and developing new payment tools. However, the CBI highlighted that the digital rial is intended for exclusive use within the country’s borders.

Furthermore, the CBI emphasized that the digital rial will help increase the resilience and stability of available infrastructure. This includes, for example, recreating the role of electronic tickets in small payments. According to the CBI, this could improve transaction efficiency and manage risks associated with the proliferation of private currencies.

Iran gives green light to cryptocurrencies?

Despite the launch of the new CBDC, Iran continues to have an ambiguous stance towards cryptocurrencies. While it allows the purchase and sale of cryptocurrencies such as Bitcoin, the use of these currencies as a means of payment for goods and services is prohibited.

Furthermore, since 2018, Iran has strictly regulated cryptocurrency mining in the country. US senators such as Elizabeth Warren have expressed concerns that cryptocurrency mining in Iran could pose a threat to US national security by allowing the country to circumvent economic sanctions.

Despite the concerns, no statement was made regarding the CBDC and the possibility of expanding the project.

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