Is South Africa set to issue a national digital currency?
The South African Reserve Bank (Sarb) could take things further by issuing a national digital currency.
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In today’s technologically advanced world, it seems as though nearly every aspect of daily life has some sort of online influence.
For example, the ability to talk to friends via social media and purchase products through internet-only retailers.
However, the South African Reserve Bank (Sarb) could take things further by issuing a national digital currency.
After observing similar plans by other African countries, the Sarb believes that a digital currency would bring about several benefits.
Even so, there are a number of risks involved too, which would need to be taken care of as securely as possible.
But, if all went to plan, would South African’s new digital tender be more stable than the rand and allow people to pay for online services, save money, or even currency trade?
Reasons for a digital currency
Africa is currently leading the way when it comes to national digital currencies. Tunisia is reportedly replacing its self-created eDinar with a blockchain-based version, while Senegal will roll out a digital alternative of the West African franc known as the eCFA later this year, which could then be extended further afield.
The Sarb has been monitoring these developments carefully and is now open to the idea of issuing a national digital currency to the South African people based on either a blockchain database or Distributed Ledger Technology (DLT).
“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,” said Tim Masela, head of the National Payments System at the Sarb.
Masela revealed that the advantages could include added convenience, greater inclusion due to its reach, real-time settlements, and reduced cost of use. “We foresee that these benefits could be realised, which would be good for the transacting public,” he added.
Challenges for a digital currency
As you would expect with any digital currency, security is the biggest issue and strong defences must be implemented in order to prevent cyber attacks.
Also, the unregulated nature of emerging business models, which is spurred by technology, could also prove problematic.
But as Masela explained: “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 spill over effect into the financial systems.”
But, while the Sarb has no firm position on fiat currencies in digital form, it does not regard crypto currencies as significant threats to financial stability, price stability, or the national payments system.
This is mainly because they do not have widespread use and are as such unregulated.
However, if the need to regulate crypto currencies did arise, Masela said the Sarb would work in co-operation with other relevant authorities such as the Financial Intelligence Centre and Financial Services Board.