Iran Plans CBDC Launch to Modernize Financial System and Combat Sanctions

The Central Bank of Iran (CBI) is moving forward with plans to launch a central bank digital currency (CBDC), Governor Mohammad Reza Farzin confirmed during a national banking conference on November 25.

The digital rial, which has been in development since 2018, is part of Iran’s broader strategy to modernize its financial infrastructure and maintain economic functionality amid ongoing international sanctions.

A Step Towards Modernizing Iran’s Banking System

Farzin highlighted the importance of developing innovative banking systems, emphasizing that it is the responsibility of central banks worldwide to stay current with technological advancements. At the Modern Banking and Payment Systems Conference in Tehran, he stated, “We are committed to fulfilling this duty in Iran,” underscoring the CBI’s dedication to keeping the nation’s financial system up to date.

The digital rial is based on the open-source Hyperledger Fabric technology and has been undergoing development since 2018. By mid-2023, the CBDC had reached the “pre-pilot” phase, with significant involvement from large Iranian banks. In June 2023, Iran launched a retail CBDC pilot on the island of Kish, a popular free trade zone that attracts millions of tourists annually. The pilot focused on domestic use of the digital rial, with reports suggesting it operates in a non-intermediated manner, designed primarily for retail transactions.

Fintech as a Tool to Counter Sanctions

Farzin also acknowledged that international sanctions remain a major challenge for Iran's financial sector but emphasized the country's ongoing progress in overcoming these obstacles. A key development in this effort was the integration of Iran's ACU payment system with Russia’s MIR system in October, which aims to replace the SWIFT network for cross-border transactions. Farzin pointed to this as part of Iran’s broader strategy to strengthen ties with the BRICS nations (Brazil, Russia, India, China, and South Africa), which are working on reshaping global trade through strategic initiatives aimed at 2025.

Additionally, Farzin highlighted Iran’s Shetab payment system, which processes transactions in under two seconds and is considered one of the most efficient systems in the region. The Shetab system is also in the early stages of connecting with Russia's MIR network, further solidifying the two countries’ financial cooperation.

Iran and Russia have collaborated on several other financial initiatives, including the development of a gold-backed stablecoin for cross-border payments. Although Iran has experimented with the use of cryptocurrency in international trade, these efforts have led to sanctions-related penalties for exchanges that violate US sanctions by conducting business with Iranian entities.

As Iran continues to pursue technological innovations like the CBDC and strengthen ties with other nations outside the influence of Western sanctions, the digital rial could become a critical tool in circumventing the limitations imposed by global financial systems.