South Africa does not have a “strong immediate need” for a central bank digital currency (CBDC) for the time being, according to the country’s central bank.
Summary
- South Africa’s central bank has concluded there is no strong immediate need for a retail CBDC.
- The central bank remains open to exploring retail CBDC use cases in the future.
- Stablecoins and cryptocurrencies pose major risks to the country, according to the central bank.
The South African Reserve Bank has published a position paper on the viability of a retail CBDC after several years of research, experimentation, and stakeholder consultations, and has concluded that these plans could be sidelined for now as it continues to focus on broader national payment reforms.
“The SARB’s research and experimentation found that a retail CBDC is technically feasible and could be implemented in a way that aligns with regulatory and policy objectives. However, the analysis does not reveal a strong immediate need for such an instrument,” the SARB wrote.
For now, the bank wants the country’s resources to be directed toward strengthening core financial infrastructures, such as the national payment system, and expanding access by promoting non-bank participation.
According to the report, the central bank has drawn lessons from international CBDC efforts and found that “several arguments can be made in favour of a retail CBDC.” One of the key drivers identified was the potential to support financial inclusion, particularly for segments of the population underserved by commercial banks and digital payment providers.
So far, the SARB sees no urgent reason to push ahead with implementation. Still, it cautioned that its current position should not be interpreted as “a view that South Africa should not implement a retail CBDC in future.”
“[…] In the longer term, there may be a need for a retail CBDC to (i) maintain public access to central bank money—a public good that will remain important even in the digital age—and (ii) realise opportunities to complement and further enhance payments and support innovation in South Africa,” the central bank continued.
The Bank also acknowledged that for a retail CBDC to be effective, it must at a minimum match the advantages of cash—such as offline capability, universal acceptance, ease of use, affordability, and strong privacy protections.
Further exploration will now shift toward wholesale CBDCs, with the SARB planning to investigate how these instruments can improve existing systems in areas like financial market innovation, settlement efficiency, and cross-border transactions.
“Continued active exploration of a wholesale CBDC will also provide valuable insights into interoperability, programmability and settlement efficiency, which may inform future decisions on retail CBDC should the need arise,” the SARB added.
Crypto and stablecoins are a threat to South Africa: SARB
According to data from the Atlantic Council CBDC Tracker, South Africa joins 36 other countries that are currently researching the use cases for central bank digital currencies. So far, only three countries, Nigeria, Jamaica, and The Bahamas, have officially launched a CBDC, though each has faced low adoption rates and modest transaction volumes.
Many other countries are instead turning their focus to stablecoins, which have witnessed a massive surge in demand over the past few years.
But South Africa, where stablecoin trading volumes soared to nearly 80 billion rand, about $4.6 billion, by October, up from less than 4 billion rand in 2022, could be exposing its financial system to significant risks if this market goes unchecked, according to the SARB.
As previously reported by crypto.news, earlier in the week, the SARB published a separate warning that stablecoin and crypto use present significant risks to the country’s financial sector, which currently lacks a well-defined regulatory framework to manage their rapid growth and cross-border nature.
The central bank and National Treasury are already working on new regulations to bring crypto assets and cross-border transactions under formal oversight. In the meantime, the country’s Financial Sector Conduct Authority has moved ahead with licensing several crypto exchanges and service providers.
Still, there remains no singular regulatory framework that ties together the various oversight efforts, leaving a fragmented environment as the crypto landscape expands across the country.
