The South African Reserve Bank (SARB) is investigating the feasibility, desirability and appropriateness of central bank issued digital currency to be used as an electronic legal tender, complimentary to cash.
The SARB has issued a tender notification on 14 May 2019.
The tender notification reads:
Request for expression of interest from prospective solution providers in anticipation of a feasibility project for the issuance of electronic legal tender – a central bank digital currency issued and backed by the South African Reserve Bank.
The SARB said in the tender notification it is embarking on a process to identify potential solution providers in the financial technology (FinTech) and related domains, and therefore invites responses to this expression of interest (EOI).
“It is imperative to highlight that this digital currency feasibility project will be purely exploratory in nature, and by no means constitutes any long-term plan and/or a commitment by the SARB to issue a digital currency,” said SARB.
The purpose-led vision of the SARB is to lead in serving the economic well-being of
South Africans through price and financial stability. To this end, the project will aim to
explore the possibility of supporting this vision through the issuance of digital currency.
The guiding policy for the exploration of the development of the digital currency is:
- Digital currency will be issued as legal tender by the SARB only.
- A possible alternative scenario is for the SARB to back the digital currency and to set
regulatory standards and interoperability requirements, but with commercial banks
acting as issuing authorities under the regulatory oversight of the SARB.
- The supply of digital currency must be limited as determined by applicable monetary policy.
- It must be possible to issue and distribute digital currency to commercial banks only, or to commercial banks as well as licensed service providers. Such licensed service
providers could be instrumental in broadening the base for financial inclusion and
would be authorised and licensed upon meeting a defined set of regulatory criteria.
- Digital currency must be complementary to cash and is not intended to replace cash. However, it is expected that digital currency would influence the movement of cash or even displace cash to some extent over time.
- Digital currency must be a liability on the SARB balance sheet.
- Digital currency must be issued at one-to-one parity with the rand.
- Transacting with digital currency must be free to the consumer, or at a very low cost
significantly below current payment channel fees.
- Digital currency must offer value or an incentive to promote its use, including a lower cost to the industry compared with the cost of cash.
- Digital currency must be ubiquitous and accepted as a means of payment by all sizes of
business and by the government.
- Digital currency must not introduce the risk of destabilising the financial sector and
mechanisms must be incorporated to give effect to policy decisions regarding its
supply and movement. Specifically, it must be possible to manage risks such as value
migrating rapidly from commercial bank money to digital currency, thereby skewing the ability
of commercial banks to provide credit.
- Digital currency must provide the opportunity for stakeholders to innovate in terms of payment
products, but must not be seen to disintermediate commercial banks.
- Digital currency must be usable alongside the rand in the member states of the Common
Monetary Area (CMA).
- Consumers must be able to own and transact in digital currency without the need for a bank account.
- Consumers and businesses must be provided with the channels to obtain or return
digital currency in exchange for cash and commercial bank money.
- Digital currency must be freely and seamlessly interchangeable between an account-based store of value and a tokenised store of value. Digital currency is expected to be interest-free or attract zero interest. This must, however, be a variable attribute to cater for different policy positions in future.
Branding of the Digital Currency
SARB states in the tender notification that the digital currency should be:
- branded and its ownership by the SARB as issuer must be evident.
- unique in its design and its SARB ownership must be clear and
- trusted and acceptable to all members of the public as legal tender,
a safe store of value, and as secure means to transfer value during transacting.