Reserve Bank exploring the use of a digital currency
Finance minister Tito Mboweni says numerous other central banks are considering the possibility
The Reserve Bank is exploring the benefits and risks of issuing a central bank digital currency (CBDC), which would essentially be the equivalent of digital cash, finance minister Tito Mboweni said on Thursday.
The Reserve Bank’s CBDC project, which mirrors those being undertaken by numerous other central banks, is now in a “request for proposal (RFP) phase”.
Vendors have been shortlisted to participate in a RFP process expected to be issued in early 2020.
In a written reply to a parliamentary question by IFP MP Narend Singh, Mboweni also noted that a working group of the Treasury, Reserve Bank and other financial-sector regulators was now considering how best to bring crypto-assets within the regulatory net. Stablecoins — cryptocurrencies whose values are pegged to a fiat currency or other assets — also formed part of this review.
“It is the intention of National Treasury and the bank that a draft policy paper on crypto-assets and stablecoins will be published in the near future,” he said.
Mboweni said any CBDC introduced by the Reserve Bank “would necessarily be linked on a one-to-one basis with the sovereign currency” — in this case the rand — the value of which is protected via the Bank’s monetary policy and inflation-targeting regime.
“Such a SA CBDC would likely be legal tender, thus obligating merchants to accept it as payment for goods and services. The practical implications such designation would have, particularly for micro-, small- and medium-sized businesses, are now under consideration.”
Mboweni said the Reserve Bank is researching the broad range of implications such an issuance of a CBDC could have for areas including domestic financial stability; domestic and cross-border payments; the monetary policy transmission mechanism; the potential disintermediation that could occur and how that could affect traditional financial intermediaries such as banks; exchange rate volatility; capital flows and capital flow volatility; and financial inclusion.
“Most of these factors are, however, focused domestically, with the potential implications of a SA CBDC for the global monetary and financial system now not being regarded at this juncture,” Mboweni noted.
The minister said the Reserve Bank was not considering issuing a stablecoin or any other cryptocurrency, be it rand-backed or otherwise.
He explained that the bank and Treasury distinguished between the concepts of cryptocurrency, stablecoins and CBDC.
He said a crypto-asset is a digital representation of value that is not issued by a central bank, but traded, transferred or stored electronically by natural or legal people used for the purpose of payment, investment or other form of utility for the user.
A stablecoin is a privately (non-central bank) issued cryptocurrency with a stability mechanism incorporated into its design with the aim of closely mimicking the value of a single sovereign currency, a basket of sovereign currencies, or another reference asset such as a commodity or even another crypto-asset.
The ultimate objective of the stablecoin, Mboweni said, was to address the widely documented challenges crypto-assets have had with limiting price volatility, which makes them unsuitable as a medium of exchange, a store of value and a unit of account.