The South African Reserve Bank (SARB) is open to innovation, embraces technology and is experimenting with digital currency and distributed-ledger technology.
This was heard at the virtual launch of the Project Khokha 2 (PK2) report on Wednesday, April 6. This launch was in collaboration with the Intergovernmental Fintech Working Group (IFWG) following the conclusion of the technical proof-of-concept.
The project aimed to issue, clear and settle South African Reserve Bank debt security on distributed ledger technology using a wholesale central bank digital currency as a form of central bank money, and a wholesale settlement token as a form of private money issued by commercial banks.
SARB governor, Lesetja Kganyago, said the PK2 was an experimental research project and it does not support any specific technology, nor does it imply a policy shift in either the financial markets or the national payment system.
He said the project was not about repeating the status quo but about challenging the thinking around designing a different future. The report is SARB’s contribution to broader discussion surrounding the regulatory treatment of assets and financial markets innovation.
He said they hope that it provides “meaningful insights to the discussions taking place between policy makers and regulators as they continue to consider the most appropriate way to amend the existing domestic legal and regulatory frameworks.”
“We recognise that digital currency innovation cannot be explored in isolation. The SARB continues to draw on the insights emerging from various initiatives including but not limited to our ongoing study into the feasibility, desirability and appropriateness of a retail central bank digital currency and this was meant to enrich our understanding of digital currency implications.”
He added that the learnings from the project provide a solid basis for further analysis and collaboration to unpack the future of trading, clearing and settling in a way that leverages the benefits of technology and maintains the safety, integrity and stability of South Africa’s financial markets.
“Some may ask whether central banks and regulators would still be relevant in a world based on some of the decentralised principles explored in the project, I think it unlikely that decentrelised markets will be suitable in all instances or that decentrelisation will guarantee the achievements of public policy objective such as consumer protection, financial stability, financial integrity and safety and soundness which fall within the mandate of central banks and regulators.”
He said regulators, central banks and policymakers must play an active role in shaping a potential move to technology-based markets. He added that while the SARB remains open to innovation and embraces technology, they refuse to be locked into any particular technology because they don’t know the best one yet.
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