There is no choice but to regulate crypto-assets, South African Reserve Bank governor Lesetja Kganyago has said.
“We are going to have to regulate this because people go and invest in cryptos and when they lose money, they ask what government has done about it.”
Kganyago was asked for his opinion on cryptocurrencies during an interview with Wits Business School professor Mills Soko.
He argued against the use of the term “cryptocurrency” and said the correct terminology is “crypto-asset”.
Kganyago said that a currency must meet the following three criteria:
- It must be a generally accepted medium of exchange.
- It must be accepted as a store of value.
- It must be a unit of account.
“A cryptocurrency is a store of value. It is a medium of exchange, but is not generally accepted. It’s only accepted by those who are participating in it,” he stated.
He also reiterated that the Reserve Bank is experimenting with the blockchain technology that underpins crypto assets.
Kganyago’s comments come amid a crackdown on South Africa’s cryptocurrency space.
In June, the Reserve Bank published its position paper on crypto assets, which included a document clarifying the Financial Surveillance (FinSurv) department’s stance on how it will apply existing exchange controls to cryptocurrencies.
Rather than first drafting new regulations for cryptocurrencies, the Reserve Bank has elected to begin enforcing existing exchange control regulations.
This has caused banks to block clients from buying cryptocurrencies from offshore exchanges using their credit cards.
While cryptocurrency purchases from offshore exchanges are not prohibited, FinSurv wants South African residents to use wire transfers rather than their credit cards to make such purchases.
Based on the position paper, this is so that the transfers may be tracked against annual allowances for sending money offshore.
In addition, the Reserve Bank has clarified that it believes transferring crypto assets from South Africa to an offshore exchange is a criminal offence.
Decentralised exchanges are considered offshore for the purposes of these regulations, the Reserve Bank said in response to MyBroadband’s questions.
FinSurv’s decision to implement ancient exchange control regulations on the burgeoning cryptocurrency and blockchain technology space was widely panned by the industry.
Many companies and individuals in the industry have warned that this harms South Africa’s ability to compete in a promising technological field.
They instead welcomed the new regulations that the crypto asset position paper suggested should be implemented.
The paper recommends that crypto asset service providers, or CASPs, be regulated in a phased approach in the following way:
- A licensing framework should be introduced for CASPs.
- FICA should be applied to the crypto-asset industry.
- Exchange control regulations should be expanded to allow CASPs to facilitate cross-border transactions in a way that FinSurv can monitor.
Cryptocurrency exchanges and other service providers in the industry said that they would welcome such regulations, as it would provide much-needed certainty to help them do business internationally.
If sensible exchange control regulations are implemented, it will attract foreign direct investment to South Africa and allow the country to compete in a nascent and rapidly expanding technology field.