South African Reserve Bank Is Open To Digital Currency

On February 2, 2017, Moneyweb reported that the South African Reserve Bank (SARB) “is open to issuing a national digital currency, which would likely be based on Blockchain or Distributed Ledger Technology (DLT).”

According to Tim Masela, head of the National Payments System at the SARB:

“If we go the route of issuing a digital currency, the objective would be to take advantage of emerging technologies so that we reap the benefits.”

According to Masela, the bank recognizes the benefits of a South African national digital currency, such as convenience, the potential greater inclusion of the unbanked, real-time settlements, and the reduction of cost use.

Masela stated:

“We foresee that these benefits could be realised, which would be good for the transacting public. But of course, the risks have to be borne in mind as well and that’s what we want to balance.”

South Africa is not the first African country to explore blockchain technology. In late 2015, Tunisia became the first country to offer a national digital currency for transmission built on a blockchain. This system, created by the Monetas software company, allows Tunisians to execute instant mobile money transfers, pay for goods and services online and in person, and manage government issued identification documents, all through the use of a smartphone.

In late 2016, the SARB joined forces with other African financial institutions to circulate a smart contract on a private Ethereum blockchain. Despite experimenting with blockchain technologies, the bank has yet to establish a solid position on the use of a digitized fiat currency.

The central bank is currently monitoring the Fintech trends of other countries in an attempt to issue fiat currencies in a digital format and offer the same benefits as cryptocurrencies. Presently, a multi-disciplinary team from the SARB, which may support future policy decisions and aid the central bank in enabling official regulations, is following developments in the crypto space closely and will determine whether or not the adoption of such currencies is appropriate for South Africa.

As to issues concerning cyber security and the unregulated nature of the cryptocurrency ecosystem, Masela has expressed concerns:

“The proponents of the technology say ‘you don’t need to regulate it; it will self-regulate’. We don’t have an idea of how that will happen, we still need to reflect on this and need a good case [to show] that it can self-regulate. Otherwise, we believe that if it is not regulated and things go wrong, it could have a spillover effect [on] the financial systems.”

Masela concludes:

“One thing that we want to state very categorically is that, in working closely with the industry, we are very conscious about possible regulatory capture. We wouldn’t want to be seen as being captured, where the regulation would be dictated by participants in the market. We will guard our independence so that the regulation is for the good of the system and not necessarily informed by the incumbents’ positions.”  

ETHNews reached out to the SARB, but, at the time of this publication, has yet to receive a comment.