Sanctions

Dollar-Less Iranians Discover Virtual Currency


A money changer holds an Iranian banknote on Ferdowsi Street in Tehran

Photograph by Vahid Salemi/AP Photo

A money changer holds an Iranian banknote on Ferdowsi Street in Tehran

(Corrects the spelling of Farzad Hashemi's name)

Under sanctions imposed by the U.S. and its allies, dollars are hard to come by in Iran. The rial fell from 20,160 against the greenback on the street market in August to 36,500 rials to the dollar in October. It’s settled, for now, around 27,000. The central bank’s fixed official rate is 12,260. Yet there’s one currency in Iran that has kept its value and can be used to purchase goods from abroad: bitcoins, the online-only currency.

Created in 2009 by a mysterious programmer named Satoshi Nakamoto, bitcoins behave a lot like any currency. Their value is determined by demand, and they can be used to buy stuff. Bitcoin transactions are encrypted and handled by a decentralized global network of tens of thousands of personal computers. Merchants around the world accept the currency, from a bakery in San Francisco to a dentist in Finland. Individuals who own bitcoins and wish to exchange them for physical currencies like euros or dollars can use exchange sites such as localbitcoins.com, a Finland-based site founded by Jeremias Kangas. “I believe that bitcoin is, or will be in the future, a very effective tool for individuals who want to avoid sanctions, currency restrictions, and high inflation in countries such as Iran,” Kangas wrote in an e-mail.

The advantage for Iranians is that bitcoins can be swapped for dollars that can then be kept outside the country. Another plus: Regulators can’t easily track the transactions, since bitcoins aren’t issued from a central server. Bitcoin users can conduct business on virtual private networks, which hide customers’ identities.

At online store coinDL.com, shoppers can use bitcoins to buy Beyond Matter, the latest album from Iranian artist Mohammad Rafigh. Anyone in the U.S. downloading songs, which fetch .039 bitcoins or 45¢ each, risks violating U.S. sanctions. That doesn’t bother Rafigh, who’s studying computer engineering as well as playing music. “Bitcoin is so interesting for me,” Rafigh wrote in an e-mail. “I wish the culture of using digital money spreads all over the world, because it does not have any dependency on anything like politics.” Rafigh has translated some bitcoin software into Farsi for his friends. “I love Iran, and if bitcoin is good for me, it can be good for more Iranians like me.”

Iranian-American bitcoin consultant Farzad Hashemi recently traveled to Tehran and talked up bitcoin to his friends. “They are instantly fascinated by it,” he says. “It’s a flash for them when they realize how it can solve their problems.” Iranians working or living abroad can send bitcoins to their families, who can use one of the online currency matchmaking services to find someone willing to exchange bitcoins for euros, rials, or dollars. Bitcoins are useful to Iranians wishing to move their money abroad, either to children studying in Europe or America or simply to stash cash in a safe place.

As the value of the rial plunges, many Iranians are trying to acquire foreign currencies. “We have no idea what will happen,” says Amir-Hossein Madani, who says he’s traded tens of millions of street market dollars in Tehran over the past two years. “These days prices change every 10 minutes.”

The uncertainty has led some Iranian software developers to ask clients to pay them in bitcoins. “Anyone with a computer is able to own, send, and receive them. You can be at an Internet cafe in Iran and managing a bitcoin account,” says Jon Matonis, a founding board member of the Bitcoin Foundation, a Seattle nonprofit that promotes the currency. The exchange rate in Iran is 332,910 rials per bitcoin. It isn’t known how many Iranians use bitcoins to skirt sanctions. According to localbitcoins’ Kangas, 32 people in Iran have contacted each other through his site.

An internal FBI report in April expressed concern over the online currency. The report was leaked to Wired and Betabeat. “Since Bitcoin does not have a centralized authority, law enforcement faces difficulties detecting suspicious activity, identifying users, and obtaining transaction records—problems that might attract malicious actors to Bitcoin,” says the report. For now, Iranians are using bitcoins to maintain a fragile connection to the outside world.

The bottom line: Iranians are resorting to virtual currency to move money into and out of the country in a way that Western authorities find hard to detect.

With Ladane Nasseri, Yeganeh Salehi, and Peter S. Green
Raskin is a reporter for Bloomberg News. Follow him on Twitter @maxraskin.

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