On Tuesday 13th February, the South African Reserve Bank (SARB) released a media statement which addressed cryptocurrencies, innovation facilitators and “Project Khoka”, an experiment with blockchain technology which aims to provide a “practical understanding of DLTs [Distributed Ledger Technologies] through the development of a proof of concept (POC) in collaboration with the banking industry”.
In order to promote a sound and effectively regulated financial system and evaluate new technical innovations, they have established a financial technology (FinTech) programme which is focussed on strategically assessing the emergence of financial technology.
With cryptocurrencies currently a hot topic, SARB’s first objective will be to review the position they will be taking with regards to private cryptocurrencies. They will be considering regulatory issues, clearing and settlement risks, exchange control impacts, monetary policy and financial stability.
They also plan on working with other regulatory bodies to discuss and review tax implications, consumer and investor protection and money laundering activities. They plan to complete this research and evaluation by the second half of 2018.
Project Khoka – Distributed Ledger Technology
Project Khoka aims to replicate interbank clearing and settlement using distributed ledger technology and through this POC they are planning on evaluating the potential risks and benefits that DLT provides.
The project will be based on Quorum which is an Ethereum enterprise DLT and SARB has partnered with Consensys, a blockchain software company that specialises in the building, testing and deployment of public and private blockchain solutions on the Ethereum blockchain. ConsenSys is one of the founding members of the Enterprise Ethereum Alliance, and its customers include Microsoft and the WWF.
Project Khoka is focused on the evaluation and understanding of the transferral of value through the use of tokenized assets. They are planning to release a public report in Q2 of 2018, which will address their findings and the risks and benefits associated with DLT technology.
This media statement is a clear indication that regulation around cryptocurrencies is definitely in the pipeline, and that financial service providers shouldn’t doubt that blockchain technology is something that has the potential to revolutionise the financial system, with the reserve bank as a prime example.
2018 looks like it will be the year of crypto regulation, but it may also be the year of wider blockchain adoption. One can be sure, that most South African cryptocurrency investors will be waiting on further news from the reserve bank with bated breath.