Reserve Bank wants to test a digital currency backed by the rand

The South African Reserve Bank is considering the feasibility of an officially-backed digital currency.

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.

The Reserve Bank has shown a continued interest in digital currency in recent years. In January, it released a new consultation paper focusing on crypto assets in the country.

One of the key focuses of the paper are the risks posed by crypto assets in South Africa.

In addition to more generic risks such as ‘the threat to central banks’ historical exclusive right to issue money’, the paper also identifies more specific risks such as the lack of consumer protection, possible misuse related to money laundering and terrorist financing, circumvention of exchange controls and the increase of undetected illicit financial flows.

You can read the full tender notice and project outline below:

SARB Digital currency tender by BusinessTech on Scribd


Read: Reserve Bank proposes stricter cryptocurrency regulations for South Africa in 2019

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Reserve Bank wants to test a digital currency backed by the rand