By While there are not many African countries who are adopting blockchain technologies and cryptocurrency, South Africa is most certainly not one of them. In fact, many consider the Southernmost nation to be the leader in crypto and blockchain on the continent.
That being said, like many other nations around the world who have niche cryptocurrency communities, regulations are confusing, incomplete or just not present. In the US the SEC is the body creating their regulations and it seems that now, joining the regulatory game is the South African Reserve Bank (SARB). SARB recently released their whitepaper which is focused on cryptocurrency regulation. As per a statement from SARB, the body argues that there are many risk and benefits pertaining to digital assets:
“Crypto assets are digital representations or tokens that are accessed, verified, transacted, and traded electronically by a community of users. Crypto assets are issued electronically by decentralised entities and have no legal tender status, and consequently are not considered as electronic money either. It, therefore, does not have statutory compensation arrangements. Crypto assets have the ability to be used for payments (exchange of such value) and for investment purposes by crypto asset users. Crypto assets have the ability to function as a medium of exchange, and/or unit of account and/or store of value within a community of crypto asset users”.
The Risks:
SARB’s consultation paper comprehensively outlines the risks found with buying and selling of crypto, arguing that digital assets pose a “threat to central banks’ historical exclusive right to issue money and control the money supply” which the bank states could “lead to the creation of a parallel – and ultimately fragmented – monetary system.”
The paper specifically isolates Bitcoin as an example of an asset that if it had to see mainstream adoption could ultimately lead to a less efficient system due to transaction and mining times.
Furthermore, SARB also stated that crypto poses the risk of financial stability arguing that “an important psychological level which, once breached, may prompt greater regulatory scrutiny and subsequent action by policymakers and regulators globally“.
SARB’s third risk to the fiat system which they noted in their paper explores the mainstream adoption of digital currencies. If (and when) this happens SARB argues that crypto “will essentially be competing directly with the national payment system, but without the same level of regulatory oversight”.
Furthermore, the reserve bank went on to argue that there are use-case risks as well, for example, the potential for scams, as well as a clear lack of protection for investors currently have which comes as a clear result of the unregulated and decentralized nature of cryptocurrency and blockchain.
The Benefits:
That’s not to say that cryptocurrencies don’t bare any benefits and SARB does highlight these too. One of the benefits highlighted in the reserve bank’s paper is that investors are able to diversify their portfolios without the risk that come with country’s economy. SARB also outlined that the anonymity found with Bitcoin and digital assets “is appealing to some users who wish not to be identified“ and went on to state:
“The holders of crypto assets are able to participate in an alternative market offering (e.g. specialised products/services where the provider only accepts crypto assets), that is. accepting crypto assets as a medium of exchange”.
How Will SARB Regulate Digital Assets?
As per the risks highlighted in the reserve bank’s paper, SARB has decided to move from their current “level “ (Where cryptocurrencies are recommended) to a “level 4” status (where cryptocurrencies are regulated).
Lastly, SARB has stated that it will heighten the regulatory pressure “[in order to achieve anti-money laundering/combating the financing of terrorism (AML/CFT) requirements, more specific requirements will be necessary in line with the recent amendments to the Financial Action Task Force (FATF) Recommendations.“
Could this be good news or bad news for the South African crypto market? Let us know your thoughts by commenting below.
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