Iran built its own financial system, and has created a cyberfront in the war

Iran built its own financial network
One reason the U.S.-Iran war is not having a direct impact on U.S. banks is because they do very little business in Iran. Obviously. The country has lived with heavy sanctions for five decades and in that time has developed what is essentially a walled-in financial system that has few connections to the rest of the world, our Joey Pizzolato writes. Joey explains how Iran's financial system has developed under those sanctions, what it looks like today, and how money from the outside world still manages to get in. 

Iranians can't use international rails for payments. Visa and Mastercard don't operate there. The Swift network doesn't have any nodes in Tehran. So they developed their own financial infrastructure, and used countries like China to help with trade. 

In some ways it looks like a regular financial system. Iran has a central bank, commercial banks, ATMs, its own digital and online financial infrastructure. But it's all developed differently because of the sanctions, and Iran's economy looks different because of the sanctions.

There is no such thing as 'the front' in cyberspace
I'd mentioned the other day that the threat of cyber attacks from Iran would increase after the U.S. and Israeli attacks, and that seems to be what's happened. The same day as the initial strikes, Iranians set up an "Electronics Operations Room" to coordinate digital attacks, our Carter Pape reports. Imagine that. As the bombs are flying, the Iranians are not just scurrying for cover, they are getting ready for a counterattack, and it's virtual. 

There's no substitute for bombs if you're fighting a war, but phishing attacks aren't terrible on their own, I suppose. Financial firms with ties to either the U.S. or Israel are the top targets. Which is, I mean, just about all of you reading this. And the Iranians have a history of doing this, of course. Be on the lookout for distributed denial-of-service attacks, phishing attacks, and wiper malware. And the tools available to them keep improving. Those nifty neato generative AI programs everybody is using? Yeah, the Iranians are using them, too. 

While the U.S. government hasn't issued any official warnings yet – we did get an official statement from the Department of Homeland Security but they just said they're keeping an eye on things – private firms such as Palo Alto Networks seem pretty convinced that this will be one way the Iranians counter the U.S. offensive. So if you get a harried message from your boss saying you need to wire money to some sketchy address right now, or enter your password into some special secret password site monitor, don't do it.

Just make a digital dollar already
The Senate appears poised to, finally, pass a housing bill, as our Claire Williams reported. () A lot of the community-banking-focused riders that were in the House version were stripped out, though a partial ban on institutional buying of houses – I say partial because it's got a 15-year sunset clause – did make it into the Senate version. As important as all that is, though, I want to focus on something else that was in the bill.

The Senate version of the housing bill includes a clause that would ban the Federal Reserve from issuing a digital dollar (also called a central bank digital currency, an awful, clunky phrase that for some reason has stuck). Why is a ban on a digital dollar in the housing bill? That's a good question.

Everybody and their mother is telling us how great stablecoins are (mostly while also planning and issuing their own). This is the future of money, they say. No friction, 24/7 payments, instant settlement, transparency, etcetera and etcetera. Sounds great! The only problem is that a world of countless wildcat digital currencies competing with each other is very likely to create chaos rather than solving problems. How is anybody supposed to build a product or service on top of a stablecoin rail that is accepted in some places but not others? Why would you? 

The big problem with all these stablecoins is that none of them have the kind of ubiquity you need to make a currency work. Money isn't some physical (or digital) commodity. Money is an agreement, a social network that allows society to account for and distribute resources. And seen from that lens, money only works when it is universally accepted. Tether is pretty universally accepted in crypto trading, and it works because of that. Nobody in crypto really cares if it's backed one-for-one with assets (I'll explain some other time why I'm right about that.) They care that they can use it for trades on any platform.

But tether is invisible outside of crypto. Nobody uses it, for anything. The reality is that a digital dollar, issued and backed by the Federal Reserve, would on day one be superior to every other stablecoin and cryptocurrency out there. It's not even really a question. The reason it hasn't happened yet is because the Fed is a very cautious, slow-moving institution, and I don't say that like it's a bad thing. But I do believe it will happen, eventually, no matter what laws are being written now. Laws can be rewritten.

We are probably going to have to go through a digital revival of the failed wildcat-currency experiment of the 19th century before we realize that we are going to have to resort to a digital version of the same solution to that experiment: a national currency.