SARB still assessing the use of digital currency

The South African Reserve Bank (SARB) says its exploration of using distributed ledger technology like blockchain has left it with more questions to answer before it can definitively say South Africa is ready to have a central bank digital currency or a blockchain-enabled stock exchange.

The Bank published the results of the second phase of its Project Khokha. This project, whose first phase was launched in 2018, has been exploring the potential usage of distributed ledger technology but in a controlled environment. The first phase looked at using the technology for interbank payments settlement in South Africa.

The second phase went a step further, looking at the usage of tokens to trade different financial assets as well as the wholesale central bank digital currency (CBDC).

In the process, the technical team created two fungible tokens. One was used to buy SARB debentures, and the other was a stablecoin issued by private commercial banks also to buy SARB debentures. It also built a trading platform, central securities depository, and a securities settlement system, the complete infrastructure that a stock exchange needs but on a blockchain platform.

But all this happened in a limited proof-of-concept environment. And the Reserve Bank Governor Lesetja Kganyago said the Bank has learnt a lot from this second phase; it is not in a position to take a policy position on the use of these technologies yet. It still needs to “play” with the technologies more to get a deeper insight into how these could affect its mandate of providing financial stability.

For now, he reckons it’s still early to reach definitive conclusions about the potential implications of using distributed ledger technologies like blockchain.

“As a central bank, we are technology agnostic. We embrace technology, but we are technology agnostic,” he said. “Project Khokha 2 was an experimental research project ... It does not signal support for any particular technology. Nor does it signal any specific shift in policy direction,” he said.

Wholesale

While the recent exploration only looked at wholesale digital currency, Kganyago said the SARB is also learning about retail CBDC.

“The South African Reserve Bank continues to draw on the insights emerging from various initiatives, including but not limited to our ongoing study into the feasibility, desirability and the appropriateness of a retail central bank digital currency,” he added.

The SARB’s fintech team said that while it was possible to run a distributed ledger technology-enabled trading platform during this experiment, it’s probably not likely to have an entirely blockchain-based stock exchange at this stage. The SARB’s mandate to ensure the stability of South Africa’s financial market will determine the pace at which it moves on this issue.

“This is how it goes with these kinds of projects. The more questions than before you started is really a sign of progress. We are dealing with very complex technology,” he said.

He said the SARB is not so concerned about missing out or being too slow than its peer central banks. Many central banks are already using digital currency on the retail side. For instance, Nigeria already has a central bank-issued digital currency, the eNaira. -Fin24