South Africa Puts Retail CBDC Plans on Hold, Citing No Immediate Need
According to the country’s central bank, there is currently no “strong immediate need” for a central bank digital currency (CBDC) in South Africa.
The South African Reserve Bank has released a position paper on the viability of a retail CBDC after several years of research, experimentation, and consultation with stakeholders, concluding that these plans may be put on hold for now as it continues to focus on broader national payments reforms.
The central bank’s research and experimentation determined that a retail CBDC is technically feasible and could be implemented in a manner consistent with regulatory and policy objectives. However, the analysis does not demonstrate a pressing immediate need for such a tool. Instead, the bank wants the country’s resources to go towards strengthening key financial infrastructures such as the national payments system and expanding access by encouraging non-bank participation.
Key Findings and Future Directions
The report highlights that the central bank has learned lessons from international CBDC efforts and noted that “several arguments can be made for a retail CBDC.” One of the key drivers identified was the potential to promote financial inclusion, particularly for populations underserved by commercial banks and digital payment providers. However, the SARB sees no urgent reason to push ahead with implementation, and its current position should not be interpreted as “the view that South Africa should not adopt a retail CBDC in the future.”
Further exploration will now focus on wholesale CBDCs, with the SARB looking to explore how these instruments can improve existing systems in areas such as financial market innovation, settlement efficiency, and cross-border transactions. The bank also acknowledged that a retail CBDC will only be effective if it offers at least the benefits of cash, such as offline capability, universal acceptance, ease of use, affordability, and strong privacy protections.
Crypto and Stablecoins Pose a Threat to South Africa’s Financial System
According to the Atlantic Council CBDC Tracker, South Africa joins 36 other countries currently exploring central bank digital currency use cases. However, the SARB warns that stablecoins and cryptocurrencies pose significant risks to the country’s financial sector, which currently lacks a clearly defined regulatory framework to address their rapid growth and cross-border nature.
Stablecoin trading volumes in South Africa rose to nearly 80 billion rand, about $4.6 billion, as of October, from less than 4 billion rand in 2022. The central bank and the Ministry of Finance are already working on new regulations to place crypto assets and cross-border transactions under formal supervision. Meanwhile, the country’s Financial Sector Conduct Authority has moved forward with licensing several crypto exchanges and service providers.
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