Most Central banks across the have always been protective of the current monetary system arguing that stability is a top priority, which has made them rather cautious about emerging solutions such as cryptocurrencies. However, more regulators have actively started to experiment with the idea of cryptocurrencies and the underlying blockchain technology.
The South African Reserve Bank (SARB) is warming up to the idea of digital currency and it has asked the industry to help it come up with the best ideas. The bank is not proposing “private or decentralised cryptocurrency” here, such as Bitcoin. It says it doesn’t consider it a unit of measure or stable value at all, which is the basic requirement of money. As a matter of fact, the Reserve Bank doesn’t even refer to the term “cryptocurrency”. It prefers the word “cyber token”
In a tender notice published on 14 May, the SARB called for ‘prospective solution providers in anticipation of a feasibility project on a digital currency’.
“The primary aim of the project is for the SARB to investigate the feasibility and desirability of central bank issued digital currency to be used as electronic legal tender, complimentary to cash,” it said.
“Although this project will be managed as a discreet set of activities within its own agreed set of milestones and deliverables, it is deemed part of the overarching SARB Fintech Programme.
“During the execution of this project, interaction will be required with the Fintech Unit and programme team in order to exchange and benefit from the skills, learnings, approach and policy determinations that emerge from both streams.”
Some of the main points surrounding the digital currency include:
- The Central Bank Digital Currency (CBDC) will be issued as legal tender by the SARB only;
- CBDC must be complementary to cash and is not intended to replace cash;
- CBDC must be unique in its design and its SARB ownership must be clear and evident;
- CBDC must be issued at one-to-one parity with the rand;
- CBDC must be ubiquitous and accepted as a means of payment by all sizes of business and by the government;
- It must not introduce the risk of destabilising the financial sector and mechanisms must be incorporated to give effect to policy decisions regarding its supply and movement;
- Consumers must be able to own and transact in CBDC without the need for a bank account;
- Consumers and businesses must be provided with the channels to obtain or return CBDC in exchange for cash and commercial bank money;
- It must enable immediate person-to-person transfer of value without clearing and settlement in today’s terms;
- CBDC must be traceable;
- CBDC must be auditable in terms of proof of issuance and ownership.
“Rapid technological changes have prompted major central banks across the globe to consider electronic forms of cash,” it said.
“Since late 2016, SARB’s Currency Management Department has conducted extensive research to understand the case for such an electronic form of cash, called electronic legal tender (ELT).
“This would be a domestic, general purpose central bank digital currency (CBDC), issued and backed by the SARB.”
The SARB said that it does not presently have a formal position on the feasibility of issuing an ELT, however, it is proactively seeking to understand the policy and other implications of issuing one.
It said that the research conducted to date focused primarily on developing an understanding of the various forms of public and private virtual currencies, as well as the potential implications should a central bank decide to issue a general purpose CBDC.
“The next phase will be practical hands-on experimentation of potential design models in an innovation lab (sandpit) environment by considering available emerging technologies as well as security and risk management aspects,” it said,
“The SARB project team has documented a number of use cases for testing purposes, and is now in the process of identifying vendors to participate in the innovation lab experimentation.
“Final outcomes from the experimentation will be used as input to determine the SARB’s position on CBDC as ELT,” it said.
