SWIFT, the system used to route payments between international banks, has announced that they will cut support to Iranian banks. This derived from the sanctions that the USA government has applied to the Iran people. This measure seeks to isolate Iran from the rest of the world for remittances and payments.
SWIFT has started cutting support for international transfers directed to Iranian banks, after announcing that it would side with the US government’s enforcing sanctions against Iran. These sanctions seek to isolate Iran from the rest of the banking community especially as they related to oil sales.
SWIFT is the de facto standard for routing payments between banks in the current system. Every bank has a SWIFT code that serves as an identification in the network. But SWIFT, the Society for Worldwide Interbank Financial Telecommunication, based in Belgium, appears to have been coerced into this situation.
While SWIFT is a service that is not geographically located in the USA, the truth is that they have very important relationships with American banks. It was all a balancing equation since by siding with the USA they will almost surely face sanctions by the EU.
The Problem and the Substitute
Despite Iran sanctions being a conjuncture and posing a threat to their people, the ability of a foreign government to coerce a vital point for the movement of an entire region is worrisome. That is why the EU answered quickly, and is now in the process of designing an alternative system for payments to be routed independently from SWIFT.
The problem is that the implementation of this alternative system could take even till 2019 to be functioning properly. This would place Iran in a bad way compared with competitors. Nonetheless, they are starting to migrate to a different system to sell their oil: an anonymous purchase system that lets buyers protect their identity from possible sanctions, and lets Iran sell their oil, albeit at a lower price.
Iran’s State Backed Cryptocurrency
But an alternative solution might be in the works. It was recently reported that the specification of Iran’s own cryptocurrency is already finalized. Supposedly it will be a sort of stablecoin, that will be backed by the national fiat currency, the rial; a strange decision now that the national currency is losing its value really fast.
An official cryptocurrency could help mitigate sanctions from the USA by sidestepping institutions like SWIFT. But the unnamed cryptocurrency is still in its beta stages and is not ready for prime time. However, exchanges that trade cryptocurrencies can also be coerced into not listing it by government pressure. American exchanges are unable to sell the Venezuelan cryptocurrency Petro, for example, due to an executive order signed by President Trump.
However, centralized systems have shown their vulnerabilities in this whole situation, and there is an important space to fill for a trusted and fast decentralized and permissionless payment gateway.
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