Iran to Use Bitcoin as Medium of Exchange to Evade U.S. Sanctions

The Ministry of Energy and the Central Bank of Iran (CBI) have issued new regulations requiring all legally registered cryptocurrency miners in the country to sell the mined bitcoins to the Central Bank of Iran as reserve funds for international trade.

Miners Obligated to Sell Bitcoin to Central Bank

According to a report by ISNA, the Iranian Ministry of Energy and the Central Bank have stated in their regulations:

"Miners are obliged to directly provide the original cryptocurrency through the authorized channels provided by the CBI."

This legislation not only signifies Iran as the first country at a state level to recognize the use of cryptocurrency as a medium of exchange, but also implies that legally mined cryptocurrencies in Iran can only be traded when the government needs to import goods from other countries.

Furthermore, the statutory limit of Bitcoin that each miner must sell to the government will vary depending on the energy subsidies requested by the miner and the policies of the Ministry of Energy.

In fact, until August 2019, Bitcoin transactions were considered illegal in the country until the Iranian government introduced a regulatory framework for cryptocurrencies. Since the passage of the new regulatory bill, the country has been open to cryptocurrencies, with the government even willing to provide energy subsidies to legally registered miners to encourage cryptocurrency mining activities.

Evading US Sanctions

Shortly after the US withdrew from the "Iran Nuclear Deal" in 2018, they re-imposed sanctions on Iran, prohibiting any organization conducting business with the Islamic Republic from doing business with the United States. On October 8th of this year, US Secretary of State Michael Pompeo announced new economic sanctions on 18 Iranian banks.

Under US sanctions, Iran's proud oil energy has struggled to monetize in the international market. Coupled with the pandemic causing many countries to announce lockdowns and the travel industry being severely impacted, global economic downturns have led to decreased oil demand. From March to July this year, Iran's oil production decreased from 3.1 million barrels per day to 1.9 million.

However, as Bitcoin gains traction in the market, the Iranian government has realized that even with oil exports hindered by sanctions and reduced demand, they can still utilize their energy and subsidize the cryptocurrency mining industry to promote low-cost and large-scale extraction, evading US sanctions in another form, allowing their oil energy to monetize.

Iran's choice of Bitcoin as a medium of exchange may not only be due to Bitcoin's market value, but perhaps more so out of political necessity.