The South African Reserve Bank (SARB) is calling for solutions providers to help it with a feasibility project investigating the creation of a digital currency that would allow consumers to transact without a bank account.
The Central Bank Digital Currency (CBDC) will be issued as legal tender by the SARB, the bank said in a tender published last month. The tender – which has just closed – was designed to identify a partner to help the SARB establish a position on the desirability and feasibility of issuing a CBDC. A formal tender process to procure a technology solution may follow.
The CBDC would be issued at one-to-one parity with the rand, and accepted by businesses and government. The currency must enable immediate person-to-person transfer of value without clearing and settlement, the tender said, and consumers must be able to own and transact in CBDC without the need for a bank account.
According to the World Bank Global Findex, about 62% of sub-Saharan Africans do not have a bank account. Confronting that challenge has made African nations pioneers in digital currencies. In 2015, Tunisia became the first country in the world to issue a blockchain-based national currency, the eDinar. Senegal followed suit when it issued its blockchain-based eCFA in 2016. A South African system would represent digital currencies’ entry into the world’s major economies: the country’s GDP is nearly 10 times greater than Tunisia’s, and more than 20 times bigger than Senegal’s.
The SARB has been researching the potential for a digital currency since 2016. In 2018, the bank undertook Project Khokha, which aimed to simulate a ‘real-world’ trial of a distributed ledger technology-based wholesale payment system. The results indicated that the typical daily volume of the South African payments system could be processed in less than two hours with full confidentiality of transactions.
Fraud and fees
One of the project’s attractions is its potential to spare citizens the costs of bank charges. According to the World Economic Forum, the fee structure of South African banks is up to four times higher than countries such as Germany, Australia and India, due to high operating costs and high levels of cybercrime.
Security is sure to be a key aspect of the final decision. According to South Africa’s Ombudsman for Banking Services, Reana Steyn, internet banking fraud continues to be the most prevalent complaint made by South African banking customers.
The SARB says that there are no expectations that the future technology platform must be based on a distributed ledger, blockchain or any other format. The solution could be based on a combination of technologies, it says.