The South African Reserve Bank does not consider cryptocurrencies to be currencies or securities, according to the bank’s deputy governor, Francois Groepe.
Groepe recently reiterated the SARB’s position on cryptocurrencies like Bitcoin, adding that they prefer to not even use the term “cryptocurrency” when referring to them.
They prefer to call them tokens, or a “cyber token,” said Groepe.
This echoes a statement SARS issued in April 2018 with respect to the tax treatment of cryptocurrencies.
“In South Africa, the word currency is not defined in the Income Tax Act,” said SARS.
Cryptocurrencies are neither official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax.
“Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.”
Groepe said tokens like Bitcoin do not meet the requirements of money in the economic sense: a stable means of exchange, a unit of measure, and a stable unit of value.
They also do not fall within South Africa’s legislation with respect to financial instruments.
“There is a bit of a regulatory vacuum,” said Groepe.
For this reason, the SARB is working with regulators in reviewing its 2014 position on cryptocurrencies.
Currently, the bank’s stance is that anyone participating in cryptocurrencies does so at their own risk.
An Intergovernmental Fintech Working Group (IFWG), established in 2016, is currently reviewing the country’s approach to cryptocurrencies. The agencies which make up its membership are:
- The Financial Intelligence Centre.
- The SARB.
- National Treasury.
- Financial Sector Conduct Authority (formerly the FSB).
The National Credit Regulator and Competition Commission are expected to join the working group soon.
According to the SARB, the intention is to draw on the IFWG to conduct a wholistic review of the cryptocurrency space and publish a policy position during the second half of 2018.
The SARB added it will not implement regulations on Bitcoin and cryptocurrencies without following a consultative process.
Regulatory issues under review include clearing and settlement risks, exchange control impacts, monetary policy, and financial stability.
The SARB review will assess what the underlying risks and benefits are, as well as whether a new policy and regulatory framework is needed.
“Our duty as the regulator is to investigate developments like artificial intelligence and distributed ledger technologies, and ensure we don’t frustrate innovation, while ensuring that the broader financial system is not placed at risk,” said Groepe.
He added that financial instruments in the market must be treated the same.
“If it walks and quacks like a duck, it is a duck and must be treated as such,” he said.