South African electronic rand update

The South African Reserve Bank has decided not to publish its findings from the first phase of its Central Bank Digital Currency (CBDC) feasibility study.

A spokesperson for the bank told MyBroadband that they concluded phase one of the feasibility study towards the end of 2022.

“This laid the basis for the work we are currently busy with in the second phase of this initiative,” the South African Reserve Bank (SARB) said.

“Phase one was essentially exploratory and, given that the findings required significantly more work, we took a decision not to publish phase one,” the spokesperson said.

“We do, however, intend to publish a report once we are satisfied with the progress made in this area.”

The Reserve Bank embarked on a study to investigate the feasibility, desirability and appropriateness of a CBDC as electronic legal tender in May 2021.

Its feasibility study investigated CBDCs for general-purpose retail use, complementary to cash.

“The objective of the feasibility study is to consider how the issuance of a general purpose CBDC will feed into the SARB’s policy position and mandate,” the Reserve Bank said in its recently published Digital Payments Roadmap.

“The SARB is continually exploring possible use cases, including whether a retail CBDC can address gaps that current traditional digital payments do not adequately fulfil,” it continued.

“This includes cost-effectiveness and real-time online and offline peer-to-peer digital payment use cases.”

After completing phase one of the study, SARB concluded that it should further explore the feasibility of digitising money over the next two years.

It is exploring the issuance of retail CBDCs and use cases for a wholesale CBDC.

The SARB announced in March last year that it had launched Project Khokha 2x, which focuses on wholesale CBDCs and stablecoins.

“The wholesale CBDCs could be used for settlements and collateral,” it stated.

Stablecoins are privately issued cryptocurrencies whose values are pegged to fiat currencies through various mechanisms, usually by managing a treasury of that currency.

USDT and USDC are prominent examples of US dollar-based stablecoins. ZARP is a stablecoin pegged to the South African rand.

CBDCs are issued by a country’s central bank and function like digital bank notes. They need not run on a blockchain.

While the Reserve Bank’s CBDC feasibility study officially kicked off in May 2021, it actually dates back much further.

In May 2019, South Africa’s central bank issued an “express of interest” tender for an electronic rand.

In September 2021, SARB participated in a Bank for International Settlements trial codenamed Project Dunbar to test the use of CBDCs.

Australia, Malaysia, and Singapore also participated in the trial.

Project Dunbar concluded in March 2022 and concluded that financial institutions could use CBDCs issued by participating central banks to transact directly with each other.

“This could reduce cost and increase the speed of processing of cross-border transactions,” SARB stated.