Cryptocurrency is on the radar of South Africa’s central bank. The South African Reserve Bank (SARB) is setting up an investigative unit to monitor the developments in the crypto space and help design future regulations. The unit will be in charge of setting up a proof of concept (PoC) for DLT-based interbank clearing and settlement.
Bridget King, Director of Banking Practice at the central bank, says the new unit will be tasked with establishing a self-regulatory approach to the cryptocurrency industry, which would translate into a non-governmental body that aims to preventing systemic risk but enabling enough innovation to keep pace with other jurisdictions. To do this, the self-regulatory organization (SRO) would be given the power to publish its own rules, directives and industry standards. A priority for the SRO would be to ensure the nascent industry is not over-regulated so it can blossom.
“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry,” she said.
“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there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology”,
Added Bridget King, who acknowledged that the anonymity of many cryptocurrencies, and untraceable hackers, pose a risk that the central bank does not wish to take.
Project Khoka will be launching a Proof-of-Concept (PoC) to replicate interbank clearing and settlement using Quorum, an Ethereum-based system. The PoC will be used to explore the feasibility of a DLT-based system for processing secure electronic payments, according to the official statement;
“The aim of this project is to gain a practical understanding of DLTs through the development of a 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”
In January, the South African Reserve Bank established a fintech task force to review the central bank’s position on private cryptocurrencies and addressing regulatory issues such as clearing and settlement risks, exchange control impacts, monetary policy and financial stability. The investigative unit Project Khoka is a product of the task force.