South African banks are watching cryptocurrency closely

Cryptocurrency has become a key focus for a variety of large national and international players.

One of these entities is social media giant Facebook, which is developing its own cryptocurrency named Libra.

The potential for a private company to build a “sovereign currency” has become cause for concern for finance ministers across the globe.

“Libra is on everyone’s mind,” said German Finance Minister Olaf Scholz.

“Finance ministers and central bankers all have serious concerns on whether all rules have been followed and if regulations need to be changed to guarantee financial stability.”

The US has also voiced its concerns around Libra, with Treasury Secretary Steven Mnuchin and President Donald Trump both speaking out against Facebook.

National implementation

Despite their fears of Facebook’s Libra, many countries are looking into implementing their own digital currencies to complement traditional ones.

Earlier in August, Bloomberg reported that the People’s Bank of China was close to implementing its own cryptocurrency.

People’s Bank of China deputy director Mu Changchun said that the intention of the digital currency would be to replace cash in circulation, rather than for credit generation or policy-impacting purposes.

Other countries that have shown an interest in implementing their own digital currencies include Tunisia, Sweden, Russia, and Estonia.

South African digital currency

The South African Reserve Bank is also among those who are considering implementing a national digital currency.

In May, the SARB told BusinessTech that it is engaging possible vendors to explore the potential that digital currency provides.

“Rapid technological changes have prompted major central banks across the globe to consider electronic forms of cash,” said a spokesperson.

The SARB added that it has been conducting research since late 2016 to work out where an electronic version of cash – called electronic legal tender (ELT) – would be valuable.

Moving forward, however, the SARB will undertake a practical hands-on experiment with various design models, considering the different available technologies, as well as their security implications.

FNB on cryptocurrency

While the South African Reserve Bank has been outspoken about its approach to cryptocurrency, local banks have generally been less forthcoming about the possibilities the technology provides.

MyBroadband asked South Africa’s most prominent banks for insight into how cryptocurrency could be implemented into their business models.

FNB CEO of Foreign Exchange Anthony Grant acknowledged that cryptocurrency technologies have received significant interest across the banking sector.

“The blockchain or distributed ledger technology (DLT) underlying cryptocurrencies has seen a large amount of investment to develop use cases for adoption, specifically in the financial services sector.”

He added that despite this, there is still a way to go before cryptocurrencies become popular, as the development of an effective regulatory environment for cryptocurrencies is still at an early stage.

“FNB will continue to engage with the various Regulatory and Supervisory bodies in order to support the development of regulation which addresses the risks associated with cryptocurrencies,” said Grant.

Grant also warned that cryptocurrencies are extremely volatile, making them a risky investment.

“FNB advises its clients to exercise caution prior to committing any funds as they are not guaranteed or linked to an underlying asset,” said Grant.

Absa and Capitec both declined to comment, and both Nedbank and Standard Bank did not respond by the time of publication.

Now read: Don’t chase the price of Bitcoin

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South African banks are watching cryptocurrency closely