Digital rand for South Africa – SARB looking at electronic legal tender

The SA Reserve Bank has issued an “expression of interest” document which centres around the issuance of electronic legal tender in South Africa.

The document calls on prospective solution providers to contact the SARB regarding an investigative project which will look at a “central bank digital currency”.

“During the latter part of 2016, the Currency Management Department of the SARB mandated a core project team to investigate the case for a domestic central bank digital currency, issued and backed by the SARB,” said the central bank.

“The core project team’s activities continued along two parallel paths during 2018,” it added, which included the research and development of a “set of use cases applicable to the intended feasibility project”.

What happens next

The SARB said the digital current feasibility project will be executed in an innovation lab environment, and will ultimately cover the following:

  • Validate the feasibility of proposed technical solutions, and enhance the body of knowledge.
  • Extend participation to selected banks and mobile network operators, and potentially to payment service providers and niche technology providers.

The digital currency will be issued as legal tender by the SARB – or it will back the digital currency and set regulatory standards and interoperability requirements.

Other highlights of the document were that the supply of the digital currency must be limited as determined by applicable monetary policy, and it will only be issued and distributed to commercial banks and licensed service providers.

Furthermore, the digital currency will be issued at one-to-one parity with the rand.

The digital currency must also “offer value or an incentive to promote its use, including a lower cost to the industry compared with the cost of cash”, and “be ubiquitous and accepted as a means of payment by all sizes of business and by the government”.

Another interesting point is that consumers must be able to “own and transact” the digital currency “without the need for a bank account”.

In terms of acquiring the digital currency, consumers and businesses must be provided with channels to obtain or return it in exchange for cash.

The closing date for the expression of interest is 6 June 2019.

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Digital rand for South Africa – SARB looking at electronic legal tender