The SA Reserve Bank has commenced an investigation into the feasibility, desirability and appropriateness of a central bank digital currency (CBDC) that could be used as legal tender for general retail monetary use as a complement to cash.
A growing number of central banks are looking into the feasibility of cryptocurrencies as they soar in popularity, even amid extreme market volatility that saw bitcoin surge to above $62,000 in early April before falling to just more than $38,000 on Tuesday. US Federal Reserve governor Lael Brainard said on Monday that a cryptocurrency backed by the US central bank could provide benefits, including improving efficiencies in cross-border transactions.
“The study will focus on the issuance of a domestic CBDC that can be used by consumers in SA for general retail purposes,” the Reserve Bank said in a statement on Tuesday. “The feasibility study will include practical experimentation across different emerging-technology platforms, taking into account a variety of factors, including policy, regulatory, security and risk management implications.”
A retail CBDC is a form of digital cash that aims to deliver the best attributes of both cash and electronic payments. The Bank’s investigation into the feasibility of a CBDC is separate from Project Khokha, which was launched in 2018 not long after the establishment of the the Bank’s fintech unit in August 2017.
Project Khokha focuses on the settlement of high-value transactions between commercial banks and other stakeholders at the wholesale level. The first phase of the project began in 2018 with seven SA banks: Absa, Capitec, Discovery Bank, FirstRand, Investec, Nedbank and Standard Bank. The initiative simulated a real-world trial of a blockchain-based wholesale payment system.
The Bank said it expects Project Khokha and the study into the retail CBDC will result in better policy alignment and co-ordination. The Bank told Business Day in January that the second phase of Project Khokha includes pending new requirements that would see SA’s foreign-exchange controls applied to cryptocurrencies, while all crypto-asset service providers would need to apply for a special licence from the Financial Sector Conduct Authority (FSCA).
The CBDC feasibility study is expected to be concluded in 2022.
“The [Bank] has, at this stage, made no decision to issue a retail CBDC,” it said in the statement.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.