Iran is set to launch a public pilot for its digital currency, the digital rial, on June 21. The Central Bank of Iran made the announcement on June 18, revealing that the pilot program will take place on Kish Island, a popular tourist destination in the Persian Gulf. Kish Island is known as a free trade zone, allowing visitors from various countries to enter without a visa.
The digital rial will enable users on the island to conduct cashless transactions by scanning a barcode, eliminating the need for physical currency or bank cards. This public rollout follows a successful pilot program that was launched in 2023.
Iran is not the only country in Asia testing a central bank digital currency (CBDC). Israel recently launched its digital shekel test for domestic payments, providing a sandbox environment and API layering to facilitate participation from financial institutions and fintechs.
China has also made significant progress in this area, with its digital yuan gaining traction since its pilot launch in 2019. In Suzhou alone, over 29 million digital wallets have been created, and transactions worth over $416 billion were conducted in 2023.
However, there are concerns that Iran’s development of a CBDC is an attempt to evade sanctions imposed by the US. In February 2024, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Informatics Services Corporation (ISC), a subsidiary of the Central Bank of Iran responsible for developing the digital rial CBDC. OFAC also sanctioned two firms in Dubai and one company in Turkey for procuring technology on behalf of ISC. These actions have led to Iran partnering with Russia on a gold-backed CBDC for cross-border payments.
The fear is that the digital rial, combined with Russia’s efforts, could enable sanctions evasion. Iran’s membership in BRICS has also prompted a push for collaboration on payment systems and digital currencies as an alternative to the US dollar, following restrictions on their access to Swift for international transactions.