Regulations governing tokenized deposits and crypto assets are likely to come into effect on January 1, 2025, a senior fintech analyst at South Africa’s central bank has revealed. However, according to the analyst, regulators are still trying to understand or learn the risks that come with using distributed ledger technology.
The Central Bank considers the suitability of retail CBDCs
Gerhard van Deventer, Senior Financial Technology Analyst at the South African Reserve Bank (SARB) recently revealed that regulations governing so-called tokenized deposits and crypto assets are expected to come into effect on January 1, 2025. Although it is seen to be takes this step As an important milestone, however, Deventer cautioned that regulators have yet to understand the risks associated with the technology that underpins digital assets.
To accomplish this, the SARB and its partners have conducted experiments aimed at understanding and identifying the risks, as well as the benefits of distributed ledger technology (DLT). Project Khokha and Project Khokha 2 are among the experiments which were carried out by the central bank of South Africa in conjunction with commercial banks.
In one of the experiments, the SARB is said to have explored a general-purpose retail central bank digital currency (CBDC). The South African central bank similarly explored wholesale and multiple CBDCs, and according to Deventer, the bank is now interested in finding a way forward.
“At SARB, we recently completed a project that explored the feasibility, desirability and suitability of a retail CBDC for South Africa. We are currently moving forward with an internal project to consider the way forward,” the fintech analyst said.
However, according to a report published in Engineering News by Creamer Media, South African regulators; The SARB and the Financial Sector Conduct Authority (FSCA), as well as the financial industry, still need to do more work on the prudential treatment of crypto assets.
Benefits of a central bank digital currency
Meanwhile, the same report also cites Sim Tshabalala, Chief Executive Officer (CE) of Standard Bank, who recently spoke about the benefits of using CBDCs to facilitate secure interbank clearing. According to Tshabalala, CBDCs, particularly retail ones, can potentially increase participation in the formal financial system. They can also reduce opportunities for tax evasion and other forms of financial crime.
However, Tshabalala noted that questions remain about the role of central banks should CBDCs become widely used. He said:
“However, at this stage it is not clear how retail CBDC balances held with commercial banks differ from other deposits, or how CBDC balances held by an individual or business directly with the central bank differ from the central bank that becomes at a retail bank. .”
Standard Bank CE said failure to address this would amount to doing nothing to “mitigate the risk and moral hazards” that arise from the direct involvement of a central bank in the financial system.
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