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Friday, May 25, 2018

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Cryptocurrency is a ‘Token’, We Won’t Call it a Currency: South Africa’s Central Bank

South Africa’s central bank is choosing to call cryptocurrencies like bitcoin as ‘cyber-tokens’ rather than currencies, arguing they do not ‘meet the requirements of money’.
SARB Deputy Governor Francois Groepe

The South African Reserve Bank (SARB), the country’s central bank, prefers to see cryptocurrencies as ‘tokens’ rather than currencies according to deputy governor Francois Groepe.

As things stand, the authority has not outlined any policies or a regulatory framework for the cryptocurrency sector. Even so, the central bank’s current outlook could lead toward an official policy sometime in the future.
In quotes reported by Bloomberg, the central bank official explained:
We don’t use the term ‘cryptocurrency’ because it doesn’t meet the requirements of money in the economic sense of the stable means of exchange, a unit of measure and a stable unit of value…We prefer to use the world ‘cyber-token’.
It isn’t immediately clear why the official weighed in on the still-unofficial stance on cryptocurrencies but the deputy governor offered his remarks while speaking to reporters in Pretoria, one of South Africa’s three capital cities, on Thursday.

The South African Reserve Bank (Sarb) has set up a team to monitor cryptocurrencies and FinTech developments to inform an appropriate policy framework and regulatory regime. The team is expected to assist Sarb in formulating an appropriate policy framework for the possible regulation of cryptocurrencies and FinTech innovations.

Cliffe Dekker Hofmeyr finance and banking practice director Bridget King however said that while banking and the national payment system fell within the Reserve Bank’s jurisdiction, cryptocurrencies were not suited to traditional centralised supervision.

“For this reason self-regulation through self-regulatory organisations (SROs) may be a more likely solution for the regulation of cryptocurrencies,” she explained.

An SRO is a non-governmental corporate body that is authorised to publish own rules, directives and industry standards for its members.

King said when regulating cryptocurrencies such as Bitcoin, Sarb would be most concerned with preventing systemic market risk and ensuring that the country’s financial system remained sound, efficient and competitive while embracing the developments in FinTech and cryptocurrencies.

She said due to the rate at which FinTech was changing and evolving on a daily basis, it could be better not to regulate the industry too soon.

“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry. In addition, if laws are drafted based on existing technology, which is still in its growth phase, there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology,” said King.

However, she Sarb would have to weigh this up against the dangers of delaying the implementation of a FinTech regulatory framework too much. “The anonymity of cryptocurrencies, and the fact that transactions cannot be traced make the currency attractive to those engaged in criminal activities.

“Consumers urgently need to be protected against hackers and other threats to their investments and transactions, and the regulators have cautioned that there is no supervisory authority, ombud or regulator to hold accountable for lost or stolen virtual currency.”

SARB has said that it would investigate the use of DTL as a means to process secure, electronic payments.

The central bank said the investigation, nicknamed “Project Khoka”, would be launched as an experiment to replicate interbank clearing and settlement using Quorum – an Ethereum enterprise system. Eight banks have signalled interest in being nodes on the network and tests of the system have already commenced, said Ismail.

The test is intended to allow the SARB and the banking industry to collaboratively assess the potential benefits of distributed ledger technologies.

“The aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (POC) in collaboration with the banking industry. The objective of the POC is to replicate interbank clearing and settlement on a DLT which will allow the Sarb and industry to jointly assess the potential benefits and risks of DLTs,” SARB said in a statement.
Having established a FinTech task force earlier in January, the SARB also installed a self-regulatory body tasked to review and outline a regulatory framework for the cryptocurrency sector in April. “[S]elf-regulation through self-regulatory organisations (SROs) may be a more likely solution for the regulation of cryptocurrencies,” the central bank’s banking practice director Bridget King said, claiming cryptocurrencies aren’t suited to traditional centralized supervision afforded to the banking and financial sectors.
In revealing the SARB’s position on cryptocurrencies yesterday, Groepe touched on the FinTech unit at play, stating:
“We want to ensure or establish whether there is still compliance with the relevant financial surveillance or exchange-control regulations.”
At the fundamental core, central banks represent the very basis of a traditional financial system that cryptocurrencies are meant to disrupt. No surprise then that most central banks and their officials offer a skeptical take with many, like the SARB, refusing to classify cryptocurrencies as money.
Elsewhere, the deputy governor of Israel’s central bank also claimed bitcoin and other digital currencies weren’t currencies nor foreign currencies but a ‘financial asset’ instead, earlier this year. Bank of England governor Mark Carney opined bitcoin had ‘failed’ as a currency so far on possessing the ‘traditional aspects of money’.
A recent effort by Zimbabwe’s central bank to ban financial institutions from providing services to the cryptocurrency exchanges and the wider industry was quickly snuffed by the High Court in Harare yesterday.


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