KATE THOMPSON DAVY: Are we ready for an iRand? And do we need it?
The Reserve Bank would hold all your personal and transactional information without the intermediary role of a private bank
Last week the SA Reserve Bank joined the growing ranks of international central banks “looking into” central bank digital currencies (CBDC). Around the time I was putting the finishing touches to my column (read: furiously typing with one eye on the clock), it issued a brief statement — just 250 words or so — confirming it is initiating a study, specifically the “feasibility, desirability and appropriateness of [digital currencies] as electronic legal tender ... complementary to cash”.
It’s certainly a trendy pursuit of public service economists. That bastion of fiscal inscrutability, the Bahamas, was the first to launch a fully functioning central bank digital currency, called the “sand dollar”. South Korea, Japan, Norway, Indonesia, and Sweden are all testing theirs, while on the continent SA joins Kenya, Ghana, Morocco and Egypt in the exploratory stage.
The UK and Canada are relatively advanced in their feasibility studies. But the country whose digital currency efforts seem to garner the most attention is China — usually in long paragraphs about the level of control and information the government has over its citizens. Frankly, those critics have a point.
Cryptocurrencies are digital currencies, but digital currencies are not crypto. Cryptos such as bitcoin are decentralised by nature. They may have growing acceptance and mainstream awareness today, but they were initially the refuge of those with a particularly sceptical bent and libertarians who want to put as much space as possible between governments and their money.
That’s one of the selling points of the blockchain: a single source of truth that cannot be manipulated by a single entity. Yes, it’s not only an ideological tool; there are practical and investment elements all wrapped up in the crypto parcel, but cryptocurrencies have crypto-anarchism in their roots: an ideology built around privacy, as well as economic and political freedoms.
Honestly, the first time I read about this kind of digital currency was fairly recently. I remember thinking — and this will be a source of much mirth for the banking and economics crowds — “Um, isn’t our currency essentially digital already?”
In some countries, the physical iterations of our money have fallen virtually completely out of use, and for early tech adopters and the middle class in most places, actual cash is just about obsolete. Today I pay my rent via EFT, my accounts on debit order. I swipe, insert or tap my cards merrily, dutifully collect the slips and promptly lose them forever in the depths of my wallet. Thankfully, even my local mall has installed number plate recognition technology in its parking so I can gleefully avoid the pay station queues. Even the beachfront ice cream place has SnapScan and Zapper QR codes. If I could tip car guards and petrol attendants with a tap or app, I’d happily give up cash forever.
So much of our money is digital already, but it resides in the private and commercial banking system. In this light, a central bank digital currency is the opposite to crypto. It’s there in the name, as this would be a currency issued by and transacted through the central bank.
The Reserve Bank announcement characterises “a retail CBDC” as “a digital form of cash aimed at providing the best attributes of both cash and electronic payments”, and there are definitely benefits to be had in this model. Our global monetary system is complex and such a digital currency could potentially circumvent the Society for Worldwide Interbank Financial Telecommunication (Swift) system, enabling speedy international payments and cheap remittances. It could speed up digital transformation. It would arguably be a boon (from a perception perspective) to the crypto crowd, and it could kneecap fraud and laundering practices.
The Reserve Bank’s announcement last week tells me two things: first, it has no respect for my deadlines (how very dare it!), and second it thoroughly overestimates the social currency it has with us now. With digital currencies the central bank wouldn’t just have access to some data about transactions, as it now does, it would skip the intermediary of a private bank, for example, and hold all the personal and transactional information itself. Imagine the incredible data and power this would give it. It would utterly transform monetary policy, yes, but are we heading in the direction of more or less trusting as a global society?
• Thompson Davy, a freelance journalist, is an impactAFRICA fellow and WanaData member.
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