by Jamie Holmes
In a brave move against Dollar hegemony, Iran has announced its intention to dump the US Dollar, possibly opening the door for a move toward Bitcoin as a reserve currency.
According to PressTV, a new common foreign currency or a basket of currencies are sought by the Iranian Central Bank to replace the US Dollar, for use in all official financial and foreign exchange reports. Valiollah Seif, governor of the Central Bank of Iran, said it would come into effect in the new financial year, March 21, 2017, and stated his recommendations to used currencies with a “high degree of stability.”
While Bitcoin advocates will stress its property as a store of value, adopting the permissionless network will also be advantageous to Iran, who have suffered economic sanctions and being blacklisted from the global SWIFT finance network. The sanctions were lifted in January 2016, as a deal was reached on Iran’s nuclear program, but goes to show that politics can affect the economic livelihoods of millions of people. While sanctions were imposed due to the alleged nuclear enrichment capabilities, ordinary Iranians have suffered at the hands of the US elite.
Given that the US is not a significant trade partner with Iran, it could be replaced with currencies of their trading partners such as the Yuan, Euro, Ruble or UAE dirham. The Islamic Republic has agreements with Russia, Turkey, and Azerbaijan to use national currencies in local trade. But Bitcoin is another option that resonates with a rejection of the US’s hegemony.
While the Yuan could be part of the basket of currencies Iran will use, the Euro may not even exist in ten years. SDR’s, a proposed world reserve currency, are just an extension of the US’s dominance via the IMF. This leaves gold and bitcoin, with the latter holding the advantages of precious metals but also technology to improve portability and divisibility.
A permissionless system like Bitcoin was identified by Saxo Bank as a factor that could drive countries away from the incumbent financial system. In their outrageous predictions for 2017, they predicted a scenario where BTC-USD would reach $2,100 under inflationary policies from Trump and a rejection of the prevailing monetary order by world powers like China.
After cutting the link with gold in 1973, the US Dollar is backed by the black gold, or oil, with an agreement with OPEC in 1973 to sell all oil in US Dollars. Given a large proportion of Iran’s exports is oil, Bloomberg notes that Iran’s decision will induce volatility and currency risk. However, at the same time, Iran is starting to eat away at the foundation of US supremacy.
Iran’s announcement should not come as a surprise, with China and Russia other prospective powers that could follow suit and galvanize the fall of the US Dollar as the world’s reserve currency and open up that title for Bitcoin. The decline of the US Dollar as a world reserve currency will lead to inflation or deflation in foreign countries, depending on their debt structures
Nevertheless, while Iran’s actions are conducted overseas, the dumping of the Dollar will have pronounced effects in the US. Lower demand will reduce the value, leading to inflation and the reduction of Americans’ purchasing power as well as pushing the price of Bitcoin higher – making it more attractive as the mechanics of the US’s monetary and military dominance are unraveled if more and more countries join Iran’s lead.
If you are escaping the Dollar, you are running to Bitcoin; the cryptocurrency siphons value out of the fractional reserve monetary system and is a ‘vote of no confidence’ in the Dollar’s hegemony. Therefore, a move away from the Dollar is equivalent to a move toward Bitcoin.
As ARK Invest’s Chris Burniske highlights, Iran, China, Russia, and others may have a vested interest in ensuring Bitcoin succeeds, gives it status as the most apolitical currency in existence. Also, it is a major reason to be bullish on BTC-USD, whose value would soar if these countries were to set up nodes and build on the Bitcoin network as a basis for a new financial system.
— Chris Burniske (@ARKblockchain) January 31, 2017