Iran’s Bitcoin Ban and the Ways of Cryptocurrency in the Greater Middle East
The Islamic Republic of Iran has joined the bandwagon of almost a dozen countries that decided not to deal with crypto or leave it all to the government approved currencies only. While earlier this year Iran authorities were planning to create their own national digital currency, now the country’s Central Bank has forbidden all financial institutions and exchanges from working with cryptocurrencies. While this move might be surprising to many, considering reports dating back to late 2017 which suggested that the country’s government considered fully legalizing cryptocurrency, the ban of bitcoin in Iran cannot be fully understood outside of the general context of the recent events in the country, as well as the general situation in the Greater Middle East.
Earlier this year, Iran saw protests on a massive scale with over 20 people killed, and Iran’s Revolutionary Guards deploying forces across three provinces. The reasons behind the protesting lied mostly with overwhelming stagnation in the country’s economy. As early as in 2017, local bank customers protested outside bank offices with the demand to give them their deposits out of fear that such institutions were about to go down. Added to that were numerous strikes by Iranian workers, while the government imposed severe restrictions on internet access, namely by banning Telegram and Signal, the most popular messenger apps in the country, and restricting access to certain networks.
The stagnation in the country’s economy itself was stemming from the stranglehold of international sanctions imposed because of the nuclear program that the Iranian government had been running for years. The international community had reasons to believe that Iran was developing nuclear weapons, which in turn could throw the entire region in uncontrollable chaos. The government of Iran issued numerous statements threatening to wipe out Israel from the face of the Earth as soon as it got the chance. The sanctions nearly stifled Iran’s economy by banning the country from selling oil and cutting it off of SWIFT, among other things.
Some of those sanctions, however, were levied as part of so-called Iran nuclear deal, aka JCPOA, which demanded that all nuclear developments in the country focused only on atomic energy and made the production of enriched plutonium impossible. This status quo itself is now threatened by President Donald Trump’s numerous hints at pulling out of the deal and imposing new sanctions on Iran because of his conviction that the deal is “terrible.” Should that happen, the new sanctions will definitely strike a massive blow on the country’s weak economy, and give a nearly 100% guarantee that the nuclear weapons program will be reinstated, as in this case Iran won’t have much to lose anymore. The availability of such powerful weapons for Iran could be fatal not only to the region of the Greater Middle East but to the entire humankind and initiate a World War III-like scenario, as nearly all nuclear superpowers have their own interests in the region.
The leaders of some European powers, such as France and Germany who have been the signees to the nuclear deal, have reportedly decided to talk Donald Trump out of abandoning the deal. This might be the main topic that the French President Emmanuel Macron will discuss with his American counterpart during the ongoing official visit to the U.S.
When it comes to cryptocurrency, however, bitcoin has become somewhat a safe haven for lots of Iranians that have to live in such conditions. Bitcoin, Litecoin and some other coins have become especially popular in the country: during the protests of 2017-2018, the number of exchange platforms in Iran nearly doubled, and even the internet restrictions seemingly could not affect that. Some locals even keep most of their savings in cryptocurrency as it seems to them more reasonable considering the economic situation in the country.
Ironically, prior to banning bitcoin, the Iranian government weighed on going all in for the world’s first cryptocurrency, and even minting its own crypto. Reports dating back to this February suggest that the country’s minister of IT Mohammad Azari Jahromi believed that Iran would explore blockchain and would even launch its own coin. However, at the same time the government seemed to grow suspicious of bitcoin and its highly unregulated economy, though some thought it could use to partially bypass the sanctions.
Cryptocurrencies in Muslim Countries of the Greater Middle East
This situation is not quite typical of other countries in the region. While some of them chose to embrace cryptocurrency, others opted to outlaw it, though for fairly different reasons than Iran.
The major financial centers of the Middle East, such as the UAE and Saudi Arabia, have been somewhat welcoming towards the technological advancements and profit opportunities brought by the new digital currencies. Reportedly, the UAE and Saudi Arabia were even working towards issuing their own cryptocurrency that would be accepted in cross-border transactions between the two countries.
In February, Mohammed El Kuwaiz, the chairman of Saudi Arabia’s Capital Markets Authority, told Business Insider that “the regulators in Saudi have been following developments with cryptocurrencies with great interest.” He also mentioned that the appropriate regulatory response was still being evaluated and that a ban on cryptocurrencies is unlikely an option.
Shortly, the Abu Dhabi Global Market (ADGM) published a press release stating that its Financial Services Regulatory Authority (FSRA) is “is reviewing and considering the development of a robust, risk-appropriate regulatory framework to regulate and supervise activities of virtual currency exchanges and intermediaries.” Meanwhile, the UAE’s Securities and Commodities Authority (SCA) warned investors about the risk associated with ICO investments.
Bahrain authorities have expressed a certain interest in cryptocurrencies as well. According to Entrepreneur, the Central Bank of Bahrain has established a regulatory sandbox for crypto businesses. It is a part of the so-called Fintech Bay initiative, backing the country’s move from oil-based to innovation-based economy.
Qatar, unlike its closest neighbors, has moved to ban Bitcoin and warned against dealing with other cryptocurrencies. According to the Central Bank of Qatar, Bitcoin “is highly volatile and can be used for financial crimes and electronic hacking,” and the prohibition is required “to ensure the safety of the financial and banking system”.
In Afghanistan, on the other hand, bitcoin is virtually unknown. As some reports suggest, while the demand for cryptocurrencies in some underdeveloped countries such as Venezuela may be staggering, people in other countries may be unaware of it due to poor communications and sometimes the lack of a necessary background. In case of Afghanistan, the number of those who are interested in bitcoin is well under 1,000, and therefore no government regulation in this regard is even remotely on the table.
Finally, there is a question of security. As some reports suggest, terrorist groups, such as ISIS, have started increasingly using bitcoin in order to raise funds. The notion of security is especially vital for the countries in the region, so cryptocurrency policies there often take the risk of terrorist funding into account while banning bitcoin or introducing regulations for its legal use.
In most cases, however, the reasons for banning or welcoming cryptocurrency are mostly economical, with the notable exception of Iran that seems to have a more political reasoning. Still, politics and economy aren’t the only notions that one should keep in mind when it comes to the fate of cryptocurrencies in the Greater Middle East.
Unclear Religious Allowability of Cryptocurrencies in Islam
In the context of cryptocurrencies in predominantly Islamic countries, the religious aspect is very important. Generally, all financial transactions that deal with Muslim communities should comply with Sharia, the supreme Muslim law. For that reason, the fate of cryptocurrencies in such communities remains ambiguous as there is no commonly accepted opinion as to bitcoin’s faithfulness to the principles of the Muslim law.
Even though only about a third of banking institutions in the region actually follow the Islamic principles, and many regular Muslims therefore enjoy the benefits of the conventional financial system, the religious allowability of dealing with cryptocurrencies can still play a decisive role both for the entities committed to the Sharia principles and the further adoption of cryptocurrencies in the Islamic world.
With some exceptions, there is still no clear ruling regarding the much debated question of whether bitcoin or other cryptocurrencies can be considered “halal,” or religiously allowable. There are several possible reasons behind the persisting uncertainty:
- There are several bodies providing their recommended standards for Islamic finance, but none of them has the authority to set these standards as rules.
- Some authorities are unwilling to lose the benefits of cryptocurrencies due to outright prohibition, but they are also hesitant to rule in favour of crypto, as it may draw criticism and cause instabilities in their nations.
- The manifold of Islamic scholars with the sufficient knowledge of the Islamic finance principles barely intersects with the manifold of people with the sufficient knowledge of blockchain technology and cryptocurrencies. Thus, there is a lack of experts able to provide clear answers regarding the applicability and interpretation of the religious principles in case of cryptocurrencies.
- In addition, there are numerous different cryptocurrencies. Some of them may be declared illegitimate due to their “speculative nature” and high volatility, but some are specifically created to comply with the Islamic principles, such as several gold-backed coins. With such a diversity, establishing a fair ruling that would cover all cryptocurrencies is quite a complicated task.
All in all, the judgements expressed by Islamic scholars and lawyers are contradictory and don’t make it easy for a regular investor to make reasonable conclusions. So far, there have been several notable rulings on this matter. According to Reuters’ sources, one of the first of such rulings was made by Monzer Kahf, a US-based academic and author of Islamic finance textbooks, who deemed bitcoin legitimate to use as a medium of exchange under Sharia. Subsequently, South African Islamic jurists also concluded that cryptocurrencies comply with the Islamic finance principles. However, scholars in Turkey, India, Britain, and Egypt declared later them unallowable.
“Overall, more evidence is needed to reach a consensus, at least until higher bodies pronounce themselves on the issue, such as the Islamic Fiqh Academy,” said Ziyaad Mahomed, Chairman of HSBC Amanah Sharia Committee in Malaysia, referring to an influential Jeddah-based institution.
According to Reuters, the director of Fatwa Department at the Fiqh Academy Abdulqahir Qamar said that the academy had not formed its judgements about cryptocurrencies yet, but is going to work in this direction.
Iran’s decision to outcast bitcoin from the legitimate scene arguably has mostly political reasons. As many have suggested, some kind of a cryptocurrency-based solution could help the country bypass the financial part of the international sanctions, so the move cannot be viewed as fully economically sound. Meanwhile, many other countries in the region, such as the UAE or Saudi Arabia, seem to go all in for cryptocurrencies, which, in turn, may drive Iran even further backwards in the economical sense, at least in the long run.
Still, until there is no universally acceptable ruling in regard of bitcoin’s allowability under the Islamic law, there can be no unequivocal conclusion as to the safety of its future in the region.
When it comes to Iran in particular, the ban of bitcoin is probably but a part of the attempts by the Iranian government to tighten the screws in order to tackle the rapidly deteriorating political and economical situation in the country, which might become even worse the next month as the nuclear deal is scheduled for revision on May 12th. Additionally, this may at least in part be connected to the terrorist threat as extremist groups are likely to try to use the civil unrest to their favor.
While there have been no reports with respect to launching Iran’s government-backed cryptocurrency since February, the partial ban of the internet might suggest that the country’s taken a course to wrap up most liberties accessible to its citizens, cryptocurrency included.
For those reasons, the issue of bitcoin’s future in the country remains more than questionable. One might suggest, however, that things will become clearer after the future of the nuclear deal becomes less ambiguous, that is, on May 12th. For now, no reasonable forecasts are possible beyond that point.
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