Reserve Bank testing ‘digital rand’ in South Africa

The South African Reserve Bank (SARB) claims that it is still looking into and testing central bank digital currencies (CBDCs), but it is focusing on a particular use case and isn’t in a rush to be the format’s worldwide pioneer.

Lesetja Kganyago, the governor of the SARB, said during a panel discussion at the annual World Economic Forum (WEF) gathering on January 18 in Davos, Switzerland, that South Africa would be “very fast followers” adopting the use of central bank currencies and taking lessons from other nations that are ahead in development.

According to him, a crucial step toward the SARB’s modernization agenda is acknowledging and preparing it for digital currencies. The governor stated that central banks must reframe their functions globally because a digital economy is emerging.

CBDC is digital representation of nation’s fiat money that the central bank of that nation controls and issues and manages. 
They may be used for cashless transactions, boosting financial inclusion and giving central banks fresh tool to enact 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.

The SARB is one of several central banks that believe the economy is changing, however demand must also be taken into account.

Does the general public really require it? Kganygo enquired.

He said that the necessity for public choice must be debated alongside major questions of regulation and governance, adding that there needs to be a national dialogue about the new system’s function.

He informed the panel that although South Africa’s successes may have seemed modest in contrast to those of other nations, the central bank had experienced significant achievement as a result.

Kganyago claims that the Reserve Bank involved all of the banks in South Africa, which account for 90% of all settlements, through the usage of CBDCs, and completed full settlements in under two hours.

Kganyago claimed that in a trial examining the use of CBDCs in cross-border transactions, SARB was able to move sizable sums of money among Southern African Development Community (SADC) members; however, significant difficulties arose when each nation desired to settle the transaction in its currency.

Trials conducted in the CBDC sector indicate that payments, particularly those made across borders, will move more quickly. According to Kgnaygao, the current system is rife with incumbents.

When moving $100 across borders, for instance, it might only be worth $60 after it reaches its destination and the transaction is completed, according to Kganyago.

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.

 

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