Home Digital Currencies South Africa central bank explores retail digital currency

South Africa central bank explores retail digital currency

South Africa's rand: central bank is looking into the ‘feasibility, desirability and appropriateness’ of a potential CBDC | Credit: © SARB

South Africa’s central bank has kicked off research into a retail central bank digital currency.

South African Reserve Bank (SARB) announced this week that it has embarked on a study to explore the ‘feasibility, desirability and appropriateness’ of a central bank digital currency (CBDC) for general purpose use: a potential digital rand.  

The aim of the study, which is expected to conclude next year, is to consider how the issuance of a general purpose CBDC ‘will feed into the SARB’s policy position and mandate’, the central bank announced.

The central bank’s research will include practical experimentation ‘across different emerging technology platforms, taking into account a variety of factors, including policy, regulatory, security and risk management implications’. The central bank emphasised that it has made no decision to actually issue a CBDC.

A general purpose or retail CBDC is one issued for public use, while a wholesale CBDC is for financial institutions that hold reserve deposits with a central bank.

Wholesale CBDC progress

SARB’s retail CBDC explorations follow work the central bank has already been progressing in the wholesale space.

In an initiative known as ‘Project Khokha’, SARB has already trialled the use of distributed ledger technology (DLT) for managing wholesale payments between settlement banks. The DLT was backed by central bank deposits, enabling banks to pledge, redeem and track balances of tokenised rand on the ledger.

SARB said in September 2018 that it would ‘continue to evaluate the potential and risks of DLT, as applied to the collective payments, securities and derivative ecosystems’.

‘Project Khokha 2’ was launched by South Africa’s Intergovernmental Fintech Working Group (IFWG) – formed in 2016 and of which SARB is a member – in February this year, with three firms as partners: Accenture; Block Markets Africa (BMA); and Deloitte, which will document the insights in a public report.

SARB said this week that it expects its retail CBDC study and Project Khokha ‘will result in better policy alignment and co-ordination’.

Indonesia ‘considering options’

South Africa’s CBDC update comes as the majority of central banks worldwide undertake explorations or experiments with digital money and focus intensifies on technological considerations.

In a further development this week, Bank Indonesia (BI)’s governor has spoken about CBDC.

“BI plans in the future to issue a central bank digital currency, digital rupiah…as a legal digital payment instrument in Indonesia,” Perry Warjiyo was quoted by news agency Reuters as saying during a streamed news conference.

Reuters’ report quoted Warjiyo as saying that the central bank was “considering our options on the technology that we will use”. A timeline was not specified.

Indonesia is the largest economy in Southeast Asia and the world’s fourth most populous nation but the country has so far had a relatively low profile on CBDC.

China is seen to be the global frontrunner among major nations with its trials of a digital yuan.

Global Government Fintech last month (22 April) organised an international webinar, in partnership with Amazon Web Services Institute (AWSI), entitled ‘Delivering Central Bank Digital Currencies (CBDCs): Exploring the Technology Challenge’.