The National:

With the Iranian rial collapsing against the US dollar and the country facing a shortage of foreign currency, it is looking at alternatives that include cryptocurrency to enable trade and support its economy.

Iran is now teaming up with Russia to launch a new stablecoin — a type of cryptocurrency — which will be backed by gold for cross-border transactions in place of the US dollar, it was reported last week.

The countries, both targets of western sanctions, are seeking to boost bilateral trade through the mechanism.

“By providing a more stable means of conducting economic transactions and reducing the impact of currency fluctuations on trade, a stablecoin may help two countries increase their trade exchanges,” says Mohammad Farzanegan, professor of Middle East economics at the Centre for Near and Middle Eastern Studies, Philipps-University Marburg in Germany.

“Since both countries are also experiencing sanctions, it might be seen as a way to bypass sanctions by using digital currencies.

“However, one should note that factors such as the degree of adoption of such types of payments by businesses in both countries, their regulatory framework and stablecoin literacy of economic agents may affect the success of the project.”

The technical infrastructure for conducting such transactions may also be a factor in its adaptation on a large scale between the two countries, he adds.

But while it may work in Russia, the value of gold does not match the value of the dollar in Iran, which might make its implementation challenging, according to Mohammed Taher Khayami, chief commercial officer of iTeller Dubai, a cryptocurrency payments platform.

The rial ebbed to a record low of about 450,000 against the greenback in Iran's unofficial market last weekend, although it has since slightly rebounded, according to the foreign exchange site Bonbast.com.

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