The South African Reserve Bank (SARB) has announced it will explore the feasibility of a general purpose or retail central bank digital currency (CBDC).
South Africa was one of the first to trial a digital currency as part of Project Khokha. However, that focused on a wholesale CBDC for high-value transactions. A second iteration, Project Khokha 2, kicked off earlier this year.
The central bank confirmed that it has not decided about a consumer-focused digital rand but plans to explore various technologies and policy, regulatory, security, and risk management issues.
The study aims to help the SARB analyse how well a CBDC will fit in with its policies and mandate. As per the press release, the Central Bank is interested in studying the feasibility of digital currencies. Also, the study aims to issue a digital currency that can be used by the general public in South Africa for the retail of various goods and services.
Interestingly, the press release has clearly mentioned that this study is completely different from Project Khokha. The latter was started in 2017 to explore whether payment scalability was possible using the Ethereum network. This project reportedly “exceeded the transaction performance target at 70,000 transactions in less than two hours.”
Numerous central banks around the world are exploring the topic. Amongst the major economies, China leads the way in terms of advancing its digital yuan trials. Recently, South Korea opened bidding for a technology solution for its potential CBDC. And Israel and Bahrain joined the party two weeks ago.
One thing that’s clear is that every country has a different set of issues that it’s looking to address with a CBDC. In China, as it moves to a cashless society, retail payments are dominated by two large providers Alipay and WeChat Pay.
A CBDC can potentially enhance competition. Financial inclusion, particularly in farming areas, is another factor as cash starts to disappear.
The South African Reserve Bank did not clarify the specific issues it is looking to address. While cash may still be widely used in South Africa, financial inclusion could be a major factor. A study showed that 14 million adults remained unbanked as of 2017.
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