SA Reserve Bank looking at new ‘digital rand’

The South African Reserve Bank (SARB) is exploring the possibility of an official Central Bank Digital Currency (CBDC).

Speaking at a Norton Rose Fulbright event in Sandton on Wednesday (28 August), senior fintech analyst Gerhard Van Deventer said that the proposed CBDC would be backed by the rand and would ideally be useable as legal tender.

“CBDC can have two different forms. One form is wholesale and the other form is retail which means that it is general-purpose.”

This general-purpose CBDC would be issued by the central bank and be made widely accessible to the public – similar to cash, but digital, he said.

“If you digitalise it, it can be account-based which has been tested by other central banks. However, none of these experiments have been successful at this stage.

“You can also issue it on a blockchain. If you do this there are some other challenges in terms of transaction throughput.

“This is something that is being explored and will be discussed in a workshop next week (in early September),” he said.

An ‘e-rand’? 

While van Deventer was hesitant to talk about the timeframes around the CBDC or when a paper on the topic would be released, the SARB has previously touched on some of its plans for the project.

In a tender notice published in May 2019, the central bank said that 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.

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.

Read: 3 rules you should follow before looking at investing in Bitcoin