South African banks in new government blockchain experiment

The Intergovernmental Fintech Working Group (IFWG) Innovation Hub has announced the launch of Project Khokha 2 with the goal to explore the policy and regulatory implications of innovation in financial markets driven by distributed ledger technology.

Distributed ledger technology is better known as blockchain technology.

The first Project Khokha experiment in 2018 used a system based on Ethereum to test how a blockchain-based network would handle interbank settlements — large transfers of value between banks.

Currently, the Reserve Bank runs a system called the South African Multiple Option Settlement System (SAMOS) to perform real-time gross settlements between local banks.

For the original Project Khokha initiative the Reserve Bank selected Consensys and its permissioned Ethereum platform, Quorum. The aim was to replicate some of the functionality of SAMOS in a distributed ledger system.

For Project Khokha 2, the IFWG selected Accenture and a company called Block Markets Africa (BMA).

“BMA’s experience in tokenising and trading financial instruments across various distributed ledger platforms will help create a Khokha network to interconnect the [digital ledger technologies] on the project,” the IFWG Innovation Hub stated.

Absa, FirstRand, Investec, the Johannesburg Stock Exchange, Nedbank, Standard Bank, and Strate will participate in Project Khokha 2.

The IFGW’s members include the Competition Commission, the Financial Intelligence Centre, the Financial Sector Conduct Authority, the National Credit Regulator, National Treasury, the South African Revenue Service (SARS), and the South African Reserve Bank.

How Project Khokha 2 will work

“Project Khokha 2 will issue, clear and settle debentures on [distributed ledger technology] using tokenised money in a minimum viable product to inform policy and regulatory reflections,” the IFWG stated.

“Industry participants will be able to purchase the debentures with a wholesale central bank-issued digital currency (wCBDC) and a wholesale digital settlement token (wToken).”

It explained that the wToken can be seen as a privately issued stablecoin used for interbank settlement.

Accenture will be responsible for developing the wCBDC for Project Khokha 2, while Block Markets Africa will produce the blockchain-based debentures as well as the wToken.

Deloitte will document the insights gained from Project Khokha 2 in a public report. The report will also include details about what was learned regarding the policy and regulatory challenges introduced by blockchain innovation.

“Project Khokha 2 is a continuation of the structured analysis of the impact of DLT on financial markets, both the benefits and the risks, by gaining practical experience through experimental trials with industry,” the IFWG said.

“The project should not be seen to reflect support for any particular technology or as a radical policy shift.”

It said that it is the project’s objective to help in formulating appropriate policy frameworks relating to financial technology.

Now read: SARS cracks down on Bitcoin traders in South Africa

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South African banks in new government blockchain experiment