The Europeans were desperate to ensure that the deal remained intact and it started to make plans.
INSTEX (Instrument in Support of Trade Exchanges) was established by the United Kingdom, France and Germany and it would essentially allow Europe-based countries to continue trading with Iran without being impacted by the U.S. sanctions.
However, it hasn’t quite lived up to what Iran hoped it would and Iran is now coming to realise that other solutions need to be found.
Crypto-currency is one possible avenue that Iran could be tempted to explore. After banning crypto-currency last year, the Iranian government has completely changed its view.
It has been reported that the Central Bank of Iran (CBI) has already issued regulations (in their draft form) regarding the use of crypto-currency. This is effectively reversing the crypto-currency ban.
This also represents an authorisation of initial crypto-currency exchange bureaus and coin offerings and the people of Iran will be free to use these currencies as a way to get around the U.S. sanctions.
The sanctions have had a considerable impact on the Iranian economy with a major drop in its oil revenues and the effects of the mass abandonment of Western companies when the U.S. announced its strategy. The economy has been deeply affected and the country’s currency had plummeted to new lows. The purchasing power of the people has been in decline and standards of living are dropping rapidly.
Iran is not experiencing the effects of sanctions for the first time. When previous sanctions had been in place, the regime had many creative ways of bypassing them. This time round, the Iranian regime is trying to portray the image of being stronger because of the sanctions but it is just bravado. President Hassan Rouhani’s claims that the country had overcome the hurdle of sanctions is just wishful thinking.
But it nevertheless makes us question the impact of sanctions. Iran has not really changed its behaviour. The regime seems to put more energy into ways to evade sanctions.
Certain experts and analysts are warning that Iran could use the European’s INSTEX mechanism to bypass the SWIFT payment system. All it would have to do is use crypto.
Financial technology analyst at MoffettNathanson LLC Lisa Ellis believes that the use of crypto with INSTEX will facilitate cross-currency movements. She said: “INSTEX is aimed at reducing the amount of cross-currency transactions required by matching buy and sell orders in local currency by matching a European exporter to Iran and an importer from Iran and matching their orders so one just pays the other one in Euros and their counterparties in Iran pay each other in Rial.”
The U.S. may need to re-think its strategy If Iran regime is creative enough to massively undermine the sanctions.