Iran’s Digital Rial explained from A to Z
The governor of the Central Bank of Iran (CBI) has announced the imminent launch of the Digital Rial, stating that it is currently in the pilot phase.
The CBI has entered this field at the right time, said Mohammadreza Farzin, emphasizing that many countries are developing or researching digital currencies to optimize their financial systems. Iran, too, has engaged in the experimental stage, testing the Digital Rial on the Kish Island.
The Digital Rial is already being used in several banks, including Bank Melli Iran, Bank Mellat, and Bank Tejarat. Five more banks are expected to join the project soon.
Plans for a digital currency began in 2021, following initial studies and approval from Iran’s High Council of Money and Credit. The pre-pilot phase started in early 2022, and a limited pilot phase began in mid-2023. By July 2024, the project expanded to a broader experimental phase, integrating two major banks. The Kish Island has become a key testing ground, where banking customers and tourists can use this digital payment tool.
What is Digital Rial?
The Digital Rial is a Central Bank Digital Currency (CBDC) issued by the Central Bank of Iran. Unlike cryptocurrencies, it is fully regulated by the state and serves as an electronic version of the national currency.
The Digital Rial aims to improve financial transparency and efficiency while providing a modern alternative to hard cash. It is not intended for investment purposes but rather to replace banknotes.
The CBI envisions transforming hard cash into programmable, smart money through the Digital Rial. Users will exchange their cash for Digital Rial stored in e-wallets. Unlike traditional cryptocurrencies, the Digital Rial is not decentralized but functions on a private, state-controlled blockchain.
Benefits of Digital Rial include cost reduction with minimizing costs for printing and distributing banknotes, and financial transparency with enhanced oversight to combat money laundering and corruption.
Economic control is another benefit with improved monetary policy execution and inflation management as well as digital economy growth with facilitating e-commerce and digital financial transactions.
Sanctions-proofing which provides an alternative to international payment systems and reduces vulnerability to international bans is a main benefit of the Digital Rial.
It has also some challenges and concerns of privacy issues as traceable transactions raise concerns about user privacy. Infrastructure needs of Digital Rial requires robust internet access, which may be limited in rural areas and cybersecurity risks which despite high-level security, risks of hacking and fraud remain.
Also, centralized control of the CBI could limit user access in specific situations.
Adoption barriers is another challenge for the Digital Riyal as public skepticism and lack of familiarity with digital finance may slow adoption.