The South African Reserve Bank (SARB) has stated that the country does not have an urgent need for a retail central bank digital currency; instead, more attention should be paid to upgrading the existing payment system.
The position was published in two documents released on Thursday: the Retail CBDC Position Paper and the Retail CBDC Background Note. These documents examined the role of cash alongside CBDCs in the evolving financial landscape of Africa, offering a holistic view of the bank’s policy stance.
No Immediate Need for a Retail CBDC
In its position paper, the SARB acknowledges that a retail CBDC is technically feasible, but there is no immediate need for its implementation.
The paper notes,
While the SARB does not currently advocate for the implementation of a retail CBDC, it will continue to monitor developments and will remain prepared to act should the need arise
It argues that at the moment, the ongoing and persistent challenges to financial access in South Africa would best be achieved through ongoing efforts to improve settlement times and widen financial participation.
Roughly 16% of adults are currently unbanked. The bank believes that a digital currency would most likely not tackle these challenges, given the peculiarities of the country’s financial economy. It noted that for meaningful progress to be realized from the use of digital currencies, a couple of associated challenges, including offline use, universal acceptance, ease of use, and privacy, would have to be addressed.
CBDCs Research Points to Limited Benefits
South Africa’s exploration of CBDCs began in 2021 when the SARB commissioned a feasibility study on the desirability and appropriateness of a retail CBDC as a legal tender. The project ran for ten months and examined multiple design models and was followed by additional internal research and small-scale experiments.
The results of the investigation were mixed. While certain use cases showed potential to support innovation in the financial sector even beyond payments, researchers concluded that a retail CBDC would not meaningfully solve South Africa’s most urgent financial sector challenges at this stage.
Instead, the SARB concluded that ongoing initiatives targeted towards the modernization of the system and the expansion of non-bank participation should remain the short- to medium-term priority.
SARB Focus Shifts to Wholesale CBDCs and Cross-Border Efficiency
Although the Bank is stepping back from a retail CBDC for now, it plans to continue exploring wholesale digital currency applications, especially those linked to cross-border payments.
This strategic shift to wholesale CBDCs reflects the growing global trend around wholesale use cases and their potential to enhance innovation and resilience in the financial markets. It also allows the SARB to build on the foundational work it has already undertaken in areas such as technology architecture, DLT experimentation, and design principles, while gaining insights that may prove the need for retail CBDCs.
Continued active exploration of a wholesale CBDC will also provide valuable insights into interoperability, programmability, and settlement efficiency, which may inform future decisions on retail CBDC should the need arise.
South Africa’s Broader Stance on Digital Assets
South Africa is one of the fastest-growing cryptocurrency markets in sub-Saharan Africa and has seen the launch of several rand-backed stablecoins.
Though the central bank has not taken a hostile stance towards virtual assets, its stance remains cautious. In a report released last week, the SARB flagged cryptocurrencies and stablecoins as emerging risks to financial stability. Governor Lesetja Kganyago has also warned that widespread reliance on dollar-pegged stablecoins could undermine the monetary sovereignty of African states.
Although the governor did not advocate for a ban, he stressed the need for confidence in the fiat currencies. Thus, the central bank’s policy position remains centered on the potential economic impact of new technologies, rather than just embracing these technologies.
What This New Policy Means for South Africa’s Digital Future
South Africa’s decision to hold off on a retail CBDC signals a deliberate approach to digital transformation.
It indicates that the current payment infrastructure is capable of addressing the majority of the needs of consumers. It also underscores the fact that an upgrade of the existing payment systems would yield broader access to financial services and better financial efficiency.
For South Africa, a digital rand remains a possibility, but not a priority. Instead, the country will continue to improve its payment rails and support financial innovation; retail CBDCs would only be considered if necessary.
