Monetary and Banking Research Institute Emphasizes Cryptocurrency Legislation in Parliament
With the rapid evolution of technology and the increasing use of cryptocurrencies, the need for dynamic and flexible laws is evident. These laws should allow for the benefits of this technology while preventing its challenges and risks. The Monetary and Banking Research Institute of the Central Bank of the Islamic Republic of Iran, in a report titled “Regulating Cryptographic Assets: A Review of Regulatory Changes”, highlights the urgent need for a comprehensive law to regulate the cryptocurrency market.
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In recent years, the cryptocurrency market has experienced remarkable growth, becoming a significant sector in the global economy. As this technology continues to expand, many countries are striving to establish clear and transparent regulations to maximize its benefits while mitigating risks. Iran, as a country witnessing increasing cryptocurrency-related activities, also requires comprehensive legislation to regulate and oversee this market.
For this reason, the Monetary and Banking Research Institute published the report “Regulating Cryptographic Assets: A Review of Regulatory Changes” in Mehr 1403 (October 2024), specifically emphasizing the need for swift action by the Islamic Consultative Assembly (Iranian Parliament) to pass a comprehensive law on cryptocurrencies. The report, summarized below, discusses the importance, necessity, and experiences of other countries in this field and stresses the urgency of legislative action by Parliament.
The report emphasizes that: “To prevent excessive regulation that could hinder market development, the Central Bank should leverage other regulatory bodies or even delegate self-regulation to the cryptocurrency industry and market, particularly in the creation and development of organized currency and legal crypto-money markets, which fall within its discretionary authority.” It further notes that: “Experience has shown that overregulation can stifle the growth and development of the cryptocurrency market.”
The Importance and Necessity of Cryptocurrency Legislation
In recent years, Iran has seen a significant increase in cryptocurrency-related activities, including mining, trading, investment, and exchange transactions. These activities have made cryptocurrencies a key player in the country’s economy. However, the lack of clear and comprehensive laws has created an environment susceptible to financial misconduct and abuse. Thus, drafting and passing comprehensive legislation that addresses all aspects of this market is of critical importance.
Despite efforts to regulate and oversee the sector, the cryptocurrency industry still faces challenges, including delays and inefficient responses from financial regulatory bodies in adapting to this emerging technology.
Advantages of Cryptocurrency Legislation in Iran
1. Market Control and Management:
One of the main benefits of enacting comprehensive cryptocurrency laws is better control and management of this market. Without specific regulations, overseeing and managing cryptocurrency-related activities remains highly challenging.
2. Preventing Money Laundering and Economic Corruption:
A lack of clear regulations can lead to financial crimes, such as money laundering and economic corruption. Proper legislation can mitigate these risks and safeguard the nation’s economic stability.
3. Protecting Investors and Users:
Many individuals hesitate to invest in cryptocurrencies due to the absence of protective laws. Enacting comprehensive regulations can boost investor confidence and safeguard their rights.
4. Economic Growth and Investment Attraction:
With a clear and structured legal framework, Iran can leverage the economic benefits of cryptocurrencies. This will not only contribute to the country’s economic growth but also attract domestic and foreign investments.
How Other Countries are Regulating Cryptocurrencies
Several countries, including the U.S., the European Union, and nations across Asia and the Middle East, have implemented clear and comprehensive regulations for cryptocurrencies. Iran can learn from their experiences and develop its own precise legal framework for this industry.
Singapore
Singapore is a global hub for digital assets and has implemented a comprehensive regulatory framework through the Monetary Authority of Singapore (MAS). This framework governs the transfer, custody, and service provision of digital assets, including digital payment tokens (DPTs). It also enforces anti-money laundering (AML) and counter-terrorism financing (CFT) regulations for industry participants.
India
India has adopted a cautious approach toward cryptocurrencies. The government has imposed a 30% tax on crypto-related income and implemented a tax deduction at source (TDS) on crypto transactions. Through the Securities and Exchange Board of India (SEBI) and cooperation with international bodies, India aims to create a coordinated regulatory framework for this sector.
Nigeria
Nigeria, one of Africa’s largest cryptocurrency markets, initially banned cryptocurrencies but later reversed the ban and established a new regulatory framework. The country now requires Virtual Asset Service Providers (VASPs) to obtain licenses and comply with strict regulatory standards.
Kenya
Kenya has adopted a regulatory approach, forming technical committees to examine the technical and economic challenges of cryptocurrencies. The country has also implemented a 3% tax on cryptocurrency trading.
Key Global Cryptocurrency Laws
MiCA (Markets in Crypto-Assets Regulation) – European Union
MiCA, the first comprehensive regulatory framework for the cryptocurrency market in the EU, aims to increase transparency, protect consumers, and ensure market integrity. The law requires crypto issuers and service providers to meet transparency and disclosure standards and hold reserves equivalent to the issued crypto assets.
FIT21 (Financial Innovation and Technology for the 21st Century Act) – United States
FIT21 is designed to establish a transparent and coordinated framework for cryptocurrencies and emerging financial technologies. It defines regulatory roles for the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to create order in the cryptocurrency market and protect investors.
Meanwhile, Turkey and the United Arab Emirates have adopted different approaches in this regard, each of which can offer important lessons for Iran.
Turkey: Due to high inflation and currency devaluation, Turkey has become a major cryptocurrency market. However, concerns about financial misuse led the government to ban cryptocurrency payments in 2021. Despite this restriction, Turkey has not completely shut down the market and is currently drafting a regulatory framework. Turkey’s cautious approach suggests that precise regulations can prevent economic risks while maintaining space for innovation.
United Arab Emirates (UAE): In contrast, the UAE is a leader in cryptocurrency regulation and has leveraged the technology to attract international investment. Dubai, in particular, has positioned itself as a global crypto hub by establishing clear and business-friendly regulations. Through free economic zones and transparent regulatory frameworks, the UAE has created a secure environment for cryptocurrency businesses. This approach has helped the country attract top global companies and investors, transforming it into a financial innovation hub.
These experiences and regulations collectively highlight the extensive transformations and the need for proper regulation in this field, which can also help other countries, including Iran, in establishing similar frameworks.
Lessons for Iran
The experiences of Turkey and the UAE demonstrate that each country tailors its cryptocurrency regulations based on its economic and social conditions. Iran can learn from Turkey’s risk-mitigation approach to control potential cryptocurrency-related threats. At the same time, Iran can adopt elements of the UAE’s model to foster innovation and attract foreign investment. A balanced strategy, combining prudent regulation with support for innovation, could be the optimal solution for Iran’s approach to cryptocurrency legislation.
Emphasis on the Approval of a Comprehensive Law by the Islamic Consultative Assembly
With the increasing use of cryptocurrencies in Iran and the expansion of related activities, the approval of a comprehensive and transparent law is of great importance. This law must cover all aspects of the market, including mining, exchange, and use of cryptocurrencies, while also helping to prevent financial violations and protect investors’ rights. Additionally, passing this law could build public trust and attract both domestic and foreign investments.
The report ultimately emphasizes: “What can be inferred from the research report by the Monetary and Banking Research Institute and the experiences of leading countries in cryptocurrency regulation is that legislative bodies, especially the Islamic Consultative Assembly, must urgently approve a comprehensive law to outline the regulatory roadmap for cryptocurrencies and define the jurisdiction of regulatory bodies. This will help clarify the legal framework and governmental viewpoints regarding these new technologies. Since technologies are constantly evolving and the cryptocurrency industry and market require dynamic and flexible regulations, regulatory bodies should be granted specific jurisdiction by the Islamic Consultative Assembly. These bodies should then regulate the sector in accordance with the rapid advancements in technology and changes in industry and market conditions.”
Furthermore, since the legislator has assigned the authority to create and develop foreign exchange and cryptocurrency markets to the Central Bank in Article 4, the Central Bank can delegate this responsibility to other institutions. In legal terms, some powers can be transferred to other entities, and if an institution refuses to carry them out, it does not have legal consequences.
Just as in other countries like the United States, where the central bank is not solely responsible for cryptocurrency regulation and institutions such as the Securities and Exchange Commission (SEC) also play a role, experience has shown that excessive regulation could hinder the growth and development of the cryptocurrency market. Therefore, it is recommended that instead of direct regulation, the Central Bank should allow other institutions or even the cryptocurrency market itself to regulate in a way that prevents issues caused by excessive regulation.
Criticism of the Monetary and Banking Research Institute Report
Despite what has been stated in the Monetary and Banking Research Institute’s report regarding the Central Bank’s responsibilities and authority, it must be noted that as a supervisory body in the field of money and currency, the Central Bank does not have legislative or regulatory authority over crypto-assets. In reality, no explicit law grants the Central Bank comprehensive legislative authority in this area.
In this regard, the Central Bank has often taken a conservative approach, focusing primarily on setting general regulations, issuing warnings, and imposing restrictions. Moreover, based on published reports, there are recommendations emphasizing the need for a comprehensive and specific law to manage crypto-assets, which should be enacted by legislative bodies such as the Islamic Consultative Assembly.
Currently, the Central Bank lacks sufficient authority to fully legislate in the field of crypto-assets, and there is a need for laws and frameworks that either delegate this responsibility precisely to relevant institutions or ensure coordination among various executive bodies.
Why the Central Bank Can Legislate on Digital Currency but Not Crypto-Assets
Since digital currencies and crypto-assets have fundamental differences in definition and nature, the responsibility for legislating crypto-assets is generally not assigned entirely to central banks. This is because crypto-assets possess unique characteristics and complexities that extend beyond the traditional functions of central banks.
Digital Currency:
Digital currencies are a type of crypto-asset designed as a medium of exchange and payment. Their primary purpose is to serve as a substitute or complement to cash or national currencies. Bitcoin and Litecoin are among the most well-known digital currencies created to facilitate payments and transactions. A key feature of digital currencies is that they are designed to be easily transferable, similar to cash, and are mainly used for payments and value storage.
Crypto-Assets:
Crypto-assets, in general, are digital assets based on blockchain technology. They include digital currencies as well as other assets designed for various purposes. Crypto-assets can represent ownership of a specific asset, such as stocks or digital goods, or provide access to a particular project or platform. Some crypto-assets are designed for investment purposes and specialized applications like smart contracts and digital asset transfers. Ethereum and non-fungible tokens (NFTs) are examples of crypto-assets with applications beyond just money.
In essence, while digital currencies function as digital money primarily used for exchange and payment, crypto-assets encompass a broader category of digital assets that serve various functions beyond just currency.
Since crypto-assets involve unique features and complexities that go beyond the traditional responsibilities of central banks, the regulation of crypto-assets is generally not solely assigned to them.
Key Reasons Why the Central Bank Should Not Regulate Crypto-Assets:
Different Areas of Expertise:
Central banks typically focus on monetary policy and financial stability, such as bank supervision, inflation management, and interest rate regulation. However, crypto-assets and blockchain-based smart contracts require expertise in capital markets, data security, and civil law. Therefore, overseeing these assets requires collaboration with multiple institutions.
Challenges of Innovation and Technology:
Crypto-assets operate in a digital and complex environment that is constantly evolving. Central banks usually adopt a conservative approach to managing financial risks, while crypto-assets demand dynamic and innovative regulatory approaches. Other entities, such as securities regulators or technology-related institutions, are better equipped to manage the unique risks of new technologies and adapt to rapid changes.
Diverse Use Cases for Crypto-Assets:
Crypto-assets serve various purposes beyond acting as currency. Some are used for investment, others for digital services, and some even function as digital securities. Because of this, institutions directly overseeing capital markets and technology (such as securities commissions) may be more capable of setting regulations tailored to the different applications of crypto-assets.
Central banks traditionally aim to maintain financial stability and may take a cautious and restrictive approach to crypto-assets. If crypto-asset regulation is left solely to central banks, excessively restrictive policies could be imposed, hindering market growth and financial innovation. Delegating some responsibilities to specialized institutions or creating a joint regulatory framework could strike a better balance between risk control and innovation development.
Global Experiences:
Many countries, including the United States, the European Union, Singapore, and Australia, follow a shared regulatory model in which multiple institutions oversee crypto-assets. For example, in the U.S., the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) work alongside the Federal Reserve in regulating crypto-assets. These joint regulatory frameworks, which distribute responsibilities among different entities, have often led to more successful outcomes.
The Central Bank is Only a Digital Currency Regulator
On the other hand, while the Central Bank seeks to control and regulate the crypto-asset sector, a previous report titled “The Central Bank is Only a Digital Currency Regulator, Not a Crypto-Asset Regulator” pointed out the Guardian Council’s objection to the Central Bank’s regulatory role in this area. As stated in this report, the Central Bank of the Islamic Republic of Iran Law was enacted on 07/09/1402 (Persian calendar) after initially being approved by the Islamic Consultative Assembly on 19/09/1401, but it was met with objections from the Guardian Council.
The Islamic Consultative Assembly, in the Central Bank of the Islamic Republic of Iran Law, refrained from delegating regulatory authority over all cryptocurrencies and instead granted regulatory authority exclusively over digital currencies to the Central Bank.
Thus, although the Assembly initially intended to grant regulatory authority over both digital currencies and general cryptocurrencies to the Central Bank, in its second revision—despite the fact that this delegation of authority was not among the Guardian Council’s objections—the Assembly ultimately chose to limit the Central Bank’s authority to digital currencies only. This decision highlights the significant point that the Islamic Consultative Assembly recognized the distinction between various types of crypto-assets and the necessity of assigning regulatory authority over each category to the appropriate competent entity. Consequently, as a monetary and banking regulator, the Central Bank has been designated solely as the regulator of digital currencies.
Conclusion
Passing comprehensive and transparent laws for cryptocurrencies in Iran will not only improve oversight and control over this market but also contribute to economic growth, prevent financial violations, and protect investors. Therefore, the Islamic Consultative Assembly must urgently approve legislation in this area so that Iran can leverage economic opportunities and cryptocurrency-related technologies while mitigating associated risks and challenges.
However, assigning sole regulatory responsibility over crypto-assets to the Central Bank may create multiple challenges and hinder market growth. Despite the Central Bank’s emphasis on regulating crypto-assets, the law passed by the Assembly grants it authority only over digital currencies—not crypto-assets in general.
