South Africa is experimenting with the ‘digital rand.’ According to deputy governor Kuben Naidoo, the South African Reserve Bank (SARB) is making good progress in its investigations into a central bank digital currency.
Naidoo stated in PSG’s most recent Think Big webinar that the SARB is deeply involved in ‘Project Dunbar,’ an initiative that brings together the Reserve Bank of Australia, the Central Bank of Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank to create a cross-border central bank digital currency.
According to Naidoo, the SARB’s goal is to increase the efficiency of the local payment system by lowering costs and the time it takes to clear and settle transactions. He expects that a central bank digital currency would be utilized for cross-border payments, such as goods and services or remittances, but that this will take “several years before it becomes a reality.”
The South African Reserve Bank previously tested a digital currency for local usage as part of its Project Khoka program, which looked at leveraging blockchain technology to speed up the country’s financial operations.
The fast rise of cryptocurrencies, which differ from digital currencies issued by central banks, poses a potential threat to existing monetary systems and adds urgency to discussions on how to handle cross-border money transfers.
SARB governor Lesetja Kganyago stated in April that digital currency innovation cannot be pursued in isolation.
“The SARB continues to draw on the insights emerging from various initiatives, including (but not limited to) our ongoing study into the feasibility, desirability and appropriateness of a retail central bank digital currency (CBDC), to enrich our understanding of digital currency implications.”
He went on to say that during Project Khokha 2, the Reserve Bank experimented with two types of tokenised money to allow for settlement:
The first kind of money was a tokenised form of central bank money, which was a central bank obligation issued onto a specific DLT owned and maintained by the SARB in the PoC. This type of money was utilized to buy SARB debentures on the secondary market.
The second kind of money was issued as a stablecoin by commercial banks and was used to purchase SARB debentures on the secondary market.
“The insights gained via practical exploration should lead to improved regulatory clarity – both for entrepreneurs and regulators – and should be in the broader interest of ensuring a level playing field for all market participants,” said Kganyago.
Regulators should proceed with prudence when examining changes before revising rules, he added, and they should be “fully appreciative” that regulated firms require clarification before committing to distributed-ledger markets.