South Africa Is Testing A CBDC, Weighing Use Cases Of A Digital Rand

By  |  January 19, 2023

The South African Reserve Bank (SARB) says that it is still looking into and testing central bank digital currencies (CBDCs), but it is focusing on a solid use case and isn’t in a rush to be among global pioneers of the new take on national currencies.

Lesetja Kganyago, the governor of the SARB, per BusinessTech, said during a panel discussion at the annual World Economic Forum (WEF) gathering on January 18 in Davos, Switzerland, that South Africa would be “very fast followers” in terms of the creation and use of central bank currencies, drawing lessons from other nations that are further along in the experiment.

According to him, a crucial step toward the SARB’s modernization agenda is the decision to acknowledge and prepare it for digital currencies. The governor stated that because a digital economy is emerging, central banks must reframe their functions globally.

The central bank of a nation issues and manages a CBDC, which is a digital replica of the fiat currency of that nation. They can be utilized for cashless transactions, boosting financial inclusion and offering central banks a fresh method for implementing monetary policy.

So far, 11 countries have fully launched a national digital currency with Nigeria being the first in Africa having rolled out the eNaira in 2021 albeit to a less-than-satisfactory effect, while several other African nations are in the exploratory and testing phases. Globally, 114 countries, representing over 95 percent of global GDP, are exploring a CBDC, per Atlantic Council’s CBDC Tracker, and over 20 countries have signalled intentions to take significant steps towards piloting a CBDC in 2023.

The use case of the new technology is still the subject of discussion and research. Kganyago nevertheless emphasized the potential of CBDCs in making national payments more efficient and helping to deal with domestic market frailties better. The SARB is one of many central banks that believe the economy is changing, though there’s a recognition that demand must also be taken into account.

“Does the public actually need it?” Kganyago asked.

“You need national conversations about the role of the new system; big issues about regulation and governance need to be discussed alongside the need for public choice,” he said.

He informed the panel that although South Africa’s achievements may have seemed modest in contrast to those of other nations, the central bank had experienced significant progress as a result.

Kganyago claims that the Reserve Bank involved all of the banks in South Africa, which account for 90 percent of all settlements, through the usage of CBDCs, and completed full settlements in under two hours.

Kganyago stated that SARB was able to move sizable sums of money among Southern African Development Community (SADC) member states in a trial looking at the use of CBDCs in cross-border transactions; however, significant difficulties arose when each country wanted to settle the transaction in their own currency.

Trials conducted in the CBDC sector indicate that payments, particularly those made across borders, will move more quickly. According to Kgnaygao, the current system is bloated and hamstrung by incumbency.

When moving USD 100.00 across borders, for instance, it might only be worth USD 60.00 after it reaches its destination and the transaction is completed, according to Kganyago.

“Making small payments across borders is (currently) very difficult.”

Conversations around CBDCs have intensified in recent years in South Africa where the cost of cross-border payments is particularly prohibitively expensive and potential solutions continue to be sought.

Feature Image Credits: BSC News

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