South Africa’s Central Bank Says It’s ‘Too Risky’ to Issue Digital Currency

The deputy governor of the South African Reserve Bank (SARB) has said that it would be ‘too risky‘ to start issuing its own digital currency.

Speaking at the Strate GIBS FinTech Innovation Conference 2017, Francois Groepe, the deputy governor of the South African Reserve Bank, commented on the development of a digital currency such as bitcoin. However, while bitcoin is gaining dominance, he stressed that the central bank needs to ensure that payment methods aren’t abused to fund money laundering or terrorism.

He noted, though, that digital currencies are becoming more recognised as people understand their concept.

As a result, he said that:

“Virtual currencies have the potential of becoming widely adopted. However, for the central bank to issue virtual currencies or cryptocurrencies in an open system will be too risky for us. This is something that we really need to think about.”

According to Groepe, though, the central bank has created a three-member team to look into how cryptocurrencies work. The bank is also expected to launch a digital currency sandbox to test how they function.

He also discussed the financial industry and how innovation is changing the sector, mainly through digital currencies.

He added:

“We are witnessing the disruption of financial services. Over the past decade or so, fintech’s attention and publicity has continued to intensify and increase. It is continuing to usher in completely new ways of banking. Developments in the fintech space are part of an evolutionary process driven by innovations.”

Bitcoin Dominates the Market

As of the 23th August bitcoin is trading at $4,239. This is a 6.93 percent increase in 24 hours, but a 0.08 drop in seven days. At press time, the digital currency’s market cap is worth over $70 billion.

Just yesterday, bitcoin’s price was listed at $3,674 as it underwent an early-week correction period. As a consequence, its market cap value dropped to $60.7 billion. However, this price rally has helped to push it back over the $4,000 mark. The recent drop in price is believed to be down to a hashrate shift from bitcoin to bitcoin cash.

According to a recent report, bitcoin cash surged to a new all-time high on the 19th August when it reached $914. Furthermore, the alternative to bitcoin was reported to have mined its first eight megabyte block, clearing nearly 40,000 transactions. According to data from Coin Dance, bitcoin cash had become 69 percent more profitable to mine than bitcoin.

Not only that, but concerns have been circulating the SegWit and SegWit2x debate, which may have pushed bitcoin’s price down.

Despite this, however, the number one currency is still the leader in the field. Ethereum, in second place, has a market cap worth $30.2 billion. Whereas, bitcoin cash, in third place, is valued at $10.9 billion. Nevertheless, fourth placed ripple is close behind with a market value amounting to $10.8 billion.

Are Fears Justified?

Considering the dominance that bitcoin is showing in the market, it’s may be surprising that South Africa’s central bank thinks it’s too risky to start issuing their own version.

Last August, it was reported that The Bank of England had issued its own digital currency. Known as the RSCoin, it shares similar traits to bitcoin such as being managed by the blockchain. However, one of its key differences is that it is centralised within The Bank of England. As a result, only one bank generates each unit of the digital currency.

The bank has keenly embraced the blockchain, which is evident in an excerpt from a quarterly bulletin. It says:

“… the key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralized way, without intermediaries such as banks.”

Not only that, but according to the U.K.’s central bank, they don’t see that digital currencies ‘pose a material risk to monetary or financial stability in the United Kingdom.’ However, it will continue to monitor developments in this area.

No doubt aware of how finance is changing, The Bank of England appear keen to maintain a hold on the sector even if that means issuing their own digital currency.

SARB Begins Testing Digital Currency Regulations

Yet, while South Africa’s bank may not be issuing its own cryptocurrency anytime soon, the bank has been discussing regulations for bitcoin.

As a result, SARB are reported to be having discussions with blockchain-based solutions provider Bankymoon. According to a report, the central bank and Bankymoon are to undertake an experiment to test regulations for the digital currency.

Both, however, are in the early stages of seeing where the partnership can go.

Loerien Gamaroff, CEO of Bankymoon, said:

“This is because the Reserve Bank is very hesitant to give a stamp of approval on anything that comes out. The sandbox will only be bitcoin focused during this initial phase, but is focused on applying broad regulations to all cryptocurrencies.”

He adds, though, that it will give a formal foundation to bitcoin, which people will be able to trust.

“I think the regulation will move things along and make people on the street comfortable with bitcoin. With these new regulations, these everyday people can now trust that bitcoin is not just for hackers and criminals.”

The bank has, in the past, expressed its interest in blockchain and digital currencies. So much so, that the bank’s governor stated that it was willing to consider the benefits that the technology could present.

At the time, Lesetja Kganyago, the governor of SARB, said:

“As a central bank, we are open to innovations despite the different opinions of regulators on matters such as cryptocurrencies. We are willing to consider the merits and risks of blockchain technology and other distributed ledgers.”

Taking Small Steps

It remains to be seen what’s next for the central bank. However, the bank has already made significant progress so far. The fact that it has started proceedings into the regulation of digital currencies is a step forward. Nothing is going to happen overnight, but these steps remain positive for the country, which is seeing an increasing number of people using bitcoin for day-to-day purchases.

Featured image from Shutterstock.

South Africa’s Central Bank to Start Testing Digital Currency Regulations

The South African Reserve Bank (SARB) has announced that it will begin testing regulations for digital currencies such as bitcoin.

During the first seven months of 2017, the digital currency market has experienced huge gains with slight drops in between. At the beginning of the year bitcoin was valued at $1,000; however, its price has since climbed through the $2,000 barrier and even scaled further than $3,000 in June.

Recently, though, the value of bitcoin dropped to below $2,000 in light of the scaling debate.

Many in the community previously believed that digital currency was going to undergo a coin split, which pushed its price down as holders keen to make a profit, while they still could, sold the coins they were holding. Of course, now that BIP 91, the network protocol upgrade for bitcoin, has been locked in by miners the value of the digital currency has risen to $2,710, as of the 24th July.

This in turned has had a positive impact on other altcoins, which also took a price tumble when bitcoin did. On the 16th July, Ethereum’s price dropped by 22 percent to $159 and 60 percent from its June high when it was over $400. At the moment ether is trading at $223, according to CoinMarketCap.

Of course, with some claiming that bitcoin has been in a price bubble it has naturally attracted the attention of authorities who think regulation is the way forward.

One organisation is SARB, which is currently having discussions with blockchain-based solutions provider Bankymoon.

In a report from BusinessTech, Loerien Gamaroff, CEO of Bankymoon, said that the provider had been chosen by the bank as its first sandbox business to undertake an experiment with new digital currency regulations.

According to the report, Gamaroff has been part of a number of workshops and seminars focusing on digital currencies within the South African market.

He states, however, that at this stage the two are working together to determine where the relationship can go for future development.

He said:

“This is because the Reserve Bank is very hesitant to give a stamp of approval on anything that comes out. The sandbox will only be bitcoin focused during this initial phase, but is focused on applying broad regulations to all cryptocurrencies.”

He adds that this step toward possible regulation will help at providing a more formal foundation and gives legitimacy to bitcoin that people will be able to trust.

“I think the regulation will move things along and make people on the street comfortable with bitcoin. With these new regulations, these everyday people can now trust that bitcoin is not just for hackers and criminals.”

 South Africa Open to Blockchain and Digital Currencies

Last August, the SARB revealed that it was open to the innovation of digital currencies and the distributed technology ledger with the bank’s governor claiming that the financial establishment is willing to consider the benefits that these technologies present.

At the time, Lesetja Kganyago, the governor of SARB, said:

“As a central bank, we are open to innovations despite the different opinions of regulators on matters such as cryptocurrencies. We are willing to consider the merits and risks of blockchain technology and other distributed ledgers.”

Bitcoin Regulation in South Africa?

At present bitcoin remains unregulated in the nation; however digital currencies aren’t prohibited or banned outright in the country.

As such, the use of them is growing as more people turn their attention to them despite the fact that a joint advisory was released in 2014 warning the public on the risks linked to the use of digital currencies.

According to Kerri Crawford, a tech lawyer at global financial law firm Norton Rose Fulbright based in Johannesburg, she thinks that as the uptake of digital currencies increases there is a chance that South African authorities will take a regulatory approach.

In a blog published in 2016, Crawford said:

“…it is possible that the South African authorities will adopt the approach taken in many other jurisdictions and explore ways in which the regulatory regime could be amended or revised.”

As more jurisdictions think about implementing a regulatory stance toward digital currencies such as bitcoin it could be that they begin to outpace fiat currencies in the future. This was the thinking from Michael Jordaan, the former CEO of one of South Africa’s ‘Big 4’ banks, the First National Bank (FNB).

In June, Jordaan said at the Software AG Innovation Tour 2017 event in Johannesburg that by 2025 digital currencies will compete with national currencies as trading volumes continue to rise.

According to a report he said that cryptocurrencies had the potential to make banks become obsolete as they continue to challenge the current banking model.

Banks Need to Embrace FinTech

Interestingly, his word echo those of former chief of Barclays bank who was reported as saying that the financial services sector needs to embrace the world of fintech if they wish to remain relevant or they could become obsolete.

Anthony Jenkins, the former CEO, said:

“We’re really at the end of the beginning of what we see as a revolution driven by technology with financial services and fintech is really a too narrow categorisation of what’s going on here. As the technologies develop and season, they’re going to create a totally different way of doing banking and financial services.”

His words follow on from a 2015 prediction when he said that there was going to be an ‘Uber-like’ disruption from the fintech sector that would change the current banking system. As a consequence, he believes that in 10 years time those working within the banking establishment will have been reduced by 20 percent, but could go as high as 50 percent.

It remains to be seen what result South Africa’s central bank comes to when it completes its trial looking into digital currency regulations; however, it would certainly be a step forward for the country as it looks at embracing innovative technologies.

By doing so, it will join the likes of Japan, which in April changed their regulations that now considers bitcoin a legal form of payment.

 

Featured image from Flickr via Paul Saad.