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The South African Reserve Bank and its Prudential Authority are busy formulating regulations on the use of crypto assets, and there’s an argument to be made that these should already have been in place by now to protect the financial system.
The Bank does not recognise cryptocurrency as legal tender, but the reality is that — by its own concession — the number of South Africans with crypto-trading accounts had nearly doubled to 8-million since early 2022 by late last year. The Bank also revealed that nearly R63bn had been externalised through local crypto platforms since 2019 — flows that fell outside exchange-control reporting.
Deputy governor Fundi Tshazibana — wearing her hat as CEO of the Prudential Authority earlier this month — signalled that the monetary authorities will not be rushed into setting up these regulations as they take the time to understand this complex issue.
The Bank’s cautious approach — for example, making unpopular interest rate decisions to contain inflation expectations — has often been vindicated down the line.
But there are already many examples of what could go wrong if the fast-growing cryptocurrency ecosystem runs unregulated for much longer.
A policy brief by the Global Initiative Against Transnational Organised Crime last year found that the illegal trade in South Africa’s endangered plants from small-scale, opportunistic harvesting into more organised and transnational operations threatens the country’s rich biodiversity heritage.
It said about 650 unique South African succulent species are implicated in illicit trade and that corruption and bribery facilitate the trade, while payments increasingly flow through cryptocurrency platforms to obscure financial trails.
Tshazibana herself noted that having crypto assets that are outside a regulatory perimeter means that “if suddenly payments are being made utilising crypto assets, there might be a concentration of risks because we don’t see how financial transactions are happening”.
“There is no regulatory oversight by any financial sector supervisor with sufficient granularity to see what that ecosystem looks like and so that’s where the risk is coming in,” she said.
In its global economic outlook last month the Bank for International Settlements, which serves as a bank for central banks, warned that while digital innovation is transforming finance, potentially enabling greater competition and efficiency in payment systems and financial intermediation, it also brings challenges, including how to preserve trust in money.
The debate should no longer be whether crypto is good or bad. That ship has long sailed. The real question is how South Africa regulates and harnesses the use of such digital assets while protecting consumers.
Yes, crypto is presently somewhat regulated through the Financial Sector Conduct Authority.
But given the rapid global advancement of the digital economy and in a country with ever-rising cases of digital fraud, we need our central bank to be overseeing the transactions taking place in this space to minimise risks to the financial system.
South Africa cannot afford to treat cryptocurrency as either a miracle or a menace. It is becoming part of the financial landscape. The challenge is ensuring it serves the economy rather than exploits it.