Donald Trump’s withdrawal from JCPOA (“Iran Nuclear Deal”) poses many problems for everyone, including both the U.S. and Iran. The biggest problems for Iran are the economic crisis threatened by the loss of foreign investment and the currency crisis threatened by denial of access to the dollar denominated banking system, a vulnerability demonstrated by the Iranian rial’s 12.5% plunge last Saturday. The degree to which it can avoid the first depends on the willingness of international actors to resist American pressure, but the latter can be easily sidestepped if Iran will just apply modern technology to a classical Islamic economic principle on what constitutes valid money.
There is a hot debate over the future of cryptocurrencies. The blockchain technology on which they are built offers privacy, security, and an independence from both government intrusion and traditional banks. On the other hand they possess many of the same flaws as government fiat currency. They are not backed by anything tangible and their value is nothing more nor less than the confidence of people in the marketplace.
Crisis presents both danger and opportunity. Iran can be the first to offer a blockchain account for a currency denominated in a well established monetary unit and backed by a valuable commodity. They can create a blockchain cryptocurrency denominated in Islamic gold dinars (4.25 grams of gold) and payable in demand in Iranian oil at the current market price. This currency would combine the benefits of a backed government fiat currency with the benefits of blockchain accounting.
I identified the advantages of a backed fiat currency in an open letter to the then-president of Iran in 2008: “Such a currency will never lose its value as long the oil backing it is sufficient to buy back the currency in circulation. It will provide you with a non-inflationary way to share the oil wealth of Iran with its people. Once established, such a currency would be attractive to all the peoples of the world who would want to denominate their foreign debts in it as the world used to use the U.S. dollar before America foolishly abandoned the gold standard and silver backing, paving the way for their recurrent inflation and the current credit crisis.” By creating a blockchain account for the trade of such a currency, the international banking system would be completely bypassed.
That is not to say that such a currency is without risk. It is very dangerous to tick off the international banking community. We recall that the overthrow of Qaddafi was triggered by the U.S. “desire to quash the gold-backed African currency” he proposed. Iran, however, may not be easily intimated. Nor would regime change be as easy to implement in the case of Iran. Even if the regime were overthrown, any new regime might be reluctant to undermine the new currency for the same reason revolutionary governments usually honor the debts of the government they overthrow (not to undermine their own credit rating). Any successor Iranian government would have the additional incentive that the Iranian people themselves favor the nuclear deal that the American sanctions seek to undermine.
If Iran creates a gold-denominated blockchain currency account that they pledge to back with Iranian oil they will doing themselves and the world a favor. Of course, any other government, including the U.S., could do the same thing, but as long as they believe they can continue playing the same game of running up huge deficits they have no incentive to do so. The current crisis provides Iran with a unique opportunity to write a new chapter in the history of monetary policy.