Reserve Bank testing ‘digital rand’ in South Africa

 ·19 Jan 2023

The South African Reserve Bank (SARB) says it is still investigating and testing a central bank digital currency (CBDC) – however, it is trying to narrow down on a specific use case and isn’t in a rush to be a global leader for the format.

Speaking on a panel at the annual World Economic Forum (WEF) meeting (18 January) in Davos, Switzerland, SARB governor Lesetja Kganyago said that South Africa would be “very fast followers” regarding the development and implementation of central bank currencies, learning from other countries that are ahead in development.

He said that the move to acknowledge and ready the SARB for digital currencies is a key step in its goal of modernisation. There is a digital economy developing, and central banks around the globe have to redefine their role, said the governor.

A CBDC is a digital version of a country’s fiat currency issued and controlled by the country’s central bank. They can potentially be used for cashless transactions, increasing financial inclusion and providing a new way for central banks to conduct monetary policy.

Debate and studies continue to surround the use case of the new system. However, Kganyago pointed to the following two drivers for an investigation into the technology:

  • The possibility to make national payments more efficient than the current real-time gross settlement (RTGS) system.
  • Being able to deal with domestic market failures better.

Central banks – including the SARB – feel that the economic environment is changing; however, the demand side also needs to be considered.

“Does the public actually need it?” Kganyago asked.

“You need national conversations about the role of the new system; big issues about regulation and governance need to be discussed alongside the need for public choice,” he said.

He told the panel that South Africa had made progress, which may seem small in comparison to what other countries have achieved – but nonetheless, it was a big success for the central bank.

According to Kganyago, through the use of CBDCs, the Reserve Bank brought in all the banks in South Africa that account for 90% of all settlements – and made full settlements within two hours.

In a trial looking into the application of CBDCs in cross-border transactions, Kganyago said that SARB was able to push large volumes of money around member states of the Southern African Development Community (SADC); however, key challenges arose when each country wished to settle the transaction in their own currency.

Trials within the CBDC space point towards the speeding up of payments, especially those across borders. Kgnaygao said that there is a great deal of incumbency in the current system.

Moving, for example, $100 dollars across borders could end up being $60 by the time it reaches its destination and the transaction is settled, Kganyago said.

“Making small payments across borders is (currently) very difficult.”

Not new

Talk about CBDCs in South Africa escalated in 2022.

South Africa is one of the most expensive G20 countries for cross-border payments, and making transactions more accessible and affordable has been on the cards for a while.

In April 2022, the governor announced that SARB was experimenting with digital currency and distributed ledger technology – commonly used on the blockchain to increase the transparency of transactions.

Project Khoka 2, initiated by the central bank, aimed to research the use of tokenized money, blockchains, and digital currency in South Africa. Since its launch, the SARB developed two new forms of money as part of this project:

  • A tokenized form of central bank money to conduct transactions between central banks and,
  • A stablecoin issued to commercial banks to purchase SARB debentures to raise capital.

Read: Reserve Bank responds to ANC plan to change its mandate

Show comments
Subscribe to our daily newsletter