Latest Developments in South Africa's Central Bank Digital Currency

The Road to Digital Currency in South Africa

South Africa is on the fast track to digitizing its currency thanks to the recent advancements with the South African Reserve Bank (SARB). The completion of a technical proof-of-concept marks a significant milestone in the nation’s journey towards implementing a central bank digital currency (CBDC).

Project Khokha: A Two-Phase Adventure

Let’s rewind the tape to 2018 when SARB introduced Project Khokha (PK1). This initiative was akin to a toddler taking its first steps—testing out distributed ledger technology (DLT) for interbank payment settlements. It successfully mirrored the banks’ conventional real-time gross settlement system, affectionately known as “SAMOS.” Fast forward to February 2021, and we’re now riding the wave of Project Khokha 2 (PK2), where the stakes get higher and the DLT tests expand to include clearing, trading, and settlement. The Intergovernmental Fintech Working Group (IFWG), featuring big players like Absa and Standard Bank, jumped on this rollercoaster ride.

Tech Upgrades: Enter CBDC and wToken

In this latest phase, ever-so-fancy terms like wholesale central bank digital currency (wCBDC) and wholesale settlement token (wToken) came into play. These developments are making the traditional banking world adjust its spectacles. By focusing on the issuance of debt instruments, SARB has armed itself with a cozy new toolset to play with in the financial sandbox.

Integration Challenges: Legacy Meets New Age

With great innovation comes great… headaches? SARB is aware that integrating these shiny new DLT platforms with legacy systems is akin to trying to fit a square peg in a round hole. Notably, the costs associated with this integration will be the banks’ responsibility—a classic case of ‘don’t shoot the messenger.’ Moreover, during this transition period, both DLT and legacy systems may have to coexist, which could result in quite the logistical juggling act.

Next Steps: Planning for a Digital Future

SARB is committed to conducting further studies on finding the perfect balance in this digital revolution. They plan to explore the implications that DLT may have on regulations and financial policies. As if that wasn’t enough, they also teased the possibility of launching another phase to build on the work of PK2, performing live transactions in a sandbox environment. Who wouldn’t want to be a kid in a digital candy store?

The Retail CBDC Puzzle

As if juggling a CBDC for wholesale transactions isn’t enough, SARB has also kicked off discussions regarding a retail CBDC since May 2021. It’s like deciding whether to have cupcakes or a whole cake—exciting yet daunting! While no date has been set for the conclusion of studies on the retail side, SARB’s commitment to understanding the desirability of this option suggests we’re all in for a digital treat sooner rather than later.