Iran’s government hits out at crypto again as currency freefalls

Tehran, Iran – Iranian authorities have again been cracking down on cryptocurrencies and online exchanges as the value of the national currency plummets in an economy in turmoil.

Last month, the Central Bank of Iran (CBI) suddenly stopped rial payments in all cryptocurrency exchanges, leaving more than 10 million crypto users unable to spend rials on Bitcoin and other global online currencies.

The goal was to counter further depreciation of the embattled national currency by stopping it from changing hands for foreign currencies.

The crypto market grew significantly last year and leans towards a bullish 2025 as countless young Iranians turn to a growing global market to make money in a largely isolated economy straining under harsh Western sanctions.

The move had been tried before at limited junctures, but never for so long and at such a scale, seeming to be part of a larger governance effort by an establishment that wants stringent levels of control and oversight on the burgeoning crypto community.

The economy has been plagued by inflation rates of more than 40 percent for years, and remains disconnected from the global payments system.

CBI establishes authority

After imposing the block, the central bank mostly maintained radio silence, not offering clarifications to the public.

The CBI also did not respond to an Al Jazeera request for comment.

In a public statement, it merely noted that CBI governor Mohammad Reza Farzin participated in a meeting of the heads of government, judiciary and parliament last month and that CBI was given “full authority to monitor and manage the cryptocurrency market” during that meeting.

President Masoud Pezeshkian also sent a letter, published in the media, to Farzin last week, emphasising that CBI is the “sole trustee to manage” the crypto market.

The meeting last month also concluded that the government wants to see more export trade bringing cryptocurrencies into the Iranian market, but did not indicate how this was to be accomplished.

The new restrictions appear to be part of strict measures to prevent currency depreciation, coming as CBI pumps more foreign currency into the volatile local market and police periodically announce the arrest of illegal currency traders in the streets of Tehran and other major cities.

The Iranian rial continued its slide this week, hitting a new all-time low of more than 940,000 per US dollar. A dollar fetched less than 600,000 rials in October last year, and less than 40,000 in early 2018.

The national currency has been experiencing a sharp decline in recent weeks amid escalating regional conflicts, blows to the Tehran-led “axis of resistance”, and Donald Trump’s insistence on a “maximum pressure” campaign.

A 4 percent cap for USDT?

Days after its sudden decision to ban rial purchases of cryptocurrencies, CBI imposed conditions on online exchanges and started negotiations with them.

Many smaller exchanges were forced to accept at least some of the conditions, including providing proof of reserves. Some have had their rial gateways restored at limited capacities, while others are still negotiating.

Some of the “proposed measures” by CBI comprised top levels of access to customer information, including real-time access, constant updates, and an ability to block users whenever deemed necessary, according to documents reviewed by Al Jazeera.

Similar to the artificial limits regulators have set for trading on Iran’s stock markets, CBI envisions imposing daily caps on how much the rial-price of cryptocurrencies can change.

If the currencies move beyond defined limits, their rial trade would be suspended for a short time.

The central bank is especially eyeing the dollar-pegged stablecoin Tether (USDT), which many Iranians have been buying as a hedge.

It wants to ensure that if USDT prices surge by more than 4 percent in a day, Iranian traders would be temporarily blocked from buying it.

‘Rationality not on the agenda’

As a result of the abrupt block of rial gateways, some crypto exchanges were forced to start looking for temporary alternatives, such as using different bank accounts to facilitate rial payments.

Incoming and outgoing crypto transactions were unaffected, and users could still take rials out of their accounts if they chose.

The central bank is facing criticism and Economy Minister Abdolnaser Hemmati, a former central bank chief and presidential candidate, is now being targeted for impeachment by hardline lawmakers. The government maintains the impeachment effort is politically driven as lawmakers want to remove the minister mere months after he started.

Rather than addressing its own imbalances in a rocky economy, CBI has adopted a strategy of deflecting attention and trying to make money through online exchanges, said the director of a local exchange.

“Repeated warnings about the adverse political, social and economic impacts of such moves, provided by stakeholders and the media, have not been heeded. The central bank closed the payment gateways with a businesslike, unethical and biased approach,” Ubitex CEO Eisa Keshavarz told Al Jazeera.

He said the establishment is, on the one hand, blocking foreign services like social media platforms to force Iranians towards local platforms, while on the other hand, it pushes people towards foreign exchanges with its restrictive moves against local counterparts.

“These double policies show that rationality, clear thinking and empathising with the people are not on the agenda, which widens the gap between the people and the government.”

Keshavarz said people will turn to unofficial, underground activities as a result of the restrictions.

“I believe it is the people’s inalienable right anywhere to turn their hard-earned money into gold, greenbacks, crypto, housing or anything to preserve their purchasing power,” he said.

‘Minimising risks’, but for whom?

CBI and others have made past attempts at regulating the burgeoning crypto industry – almost all were measures that perplexed or frustrated stakeholders.

The government made crypto mining – the process of generating new coins using computational power – legal in 2019 under strict conditions.

Many miners were driven out, especially due to repeated cutoffs of mining rigs because of electricity shortages.

Observers and experts now believe that regulators, faced with a widening government budget deficit, will move towards taxing crypto transactions.

The Supreme Council of Cyberspace, Iran’s top internet governance body, released a regulatory roadmap last month that observers say does not bode well for the crypto community.

It discusses “facilitating international trade” through crypto, which, according to crypto and blockchain researcher Saeed Khoshbakht, could be interpreted as attempts to circumvent sanctions on Iran.

“Especially after Mr Trump’s election, this could expose crypto users to risks of being blacklisted or having their transactions flagged on international exchanges,” he told Al Jazeera.

The expert said using international transactions as a keyword in the document could also leave major domestic crypto transactions unaudited because they may be deemed confidential, decreasing transparency.

At the same time, the regulatory document adopts a policy of “active control and countermeasures” in dealing with global cryptocurrencies, purporting to “minimise risks”, but does not say exactly how or for whom.

“If they said minimising risks for citizens, at least some level of support could be envisioned. But without this word, ‘minimising risk’ appears focused on the state rather than the people, and this means a host of new restrictions masked as control and management,” Khoshbakht said.