Future of digital currency in SA – will cash finally meet its match?

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And, with more territories around the world edging closer to the establishment of Central Bank Digital Currencies (CBDCs), it appears that the mainstream adoption of digital currency may not be too far away. South Africa is no exception. There are, however, a few unique obstacles to overcome.

It all began with Bitcoin

The advent of Bitcoin in 2009 was assumed by many to be more of a fleeting fad than an enduring trend. The hype around this novel notion of cryptocurrency however, spread like wildfire and before long, reached South African shores. Early adopters and tech-savvy individuals led the charge and soon after the launch of Bitcoin, South Africans had joined the global fray of people who were eager to line their e-wallets with this promising new currency.

The market for digital currency has since come a long way. Today, according to the Financial Sector Conduct Authority (FSCA), at least 6 million South Africans own a crypto asset. Online trading platforms like Tickmill have made the trade of crypto accessible to a wider audience – now anyone, regardless of their background or economic standing can enter the online trading arena. With ever-increasing levels of mobile penetration, this rate is set to increase exponentially over the next few years.

Most online trading platforms now market their cryptocurrency trading services and options right alongside more traditional market instruments like shares, indices or forex. For South Africa, this is no small development. It is an indicator that digital currency has become more mainstream than many may be aware. It is a sign of things to come.

A South African CBDC – to be or not to be?

Most recently, the South African Reserve Bank announced that it is looking into the feasibility of a CBDC that can be used domestically by consumers for general retail purposes. Put simply, a CBDC is a digital form of a country's fiat currency that is issued and regulated by the central bank.

Unlike cryptocurrencies such as Bitcoin, which operate on decentralised networks, CBDCs are centrally controlled and backed by the full faith and credit of the government. CBDCs aim to digitise traditional forms of currency, providing a secure and efficient means of payment and financial transactions in the digital age.

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South Africa’s investigation into a CBDC echoes developments in other countries around the world. Some countries have pioneered the use of CBDCs, including The Bahamas, with its SandDollar, Jamaica with its JAM-DEX, and Nigeria with the eNaira. According to the International Monetary Fund, more than 100 other countries including South Africa, are in the exploration stage, with territories such as Brazil, India, and the United Kingdom leading the pack.

Regardless of the outcome of the Sarb’s feasibility study, the Reserve Bank’s interest in digital currency is illustrative of just how ubiquitous it has become, and of the very real possibility that cash may finally have a worthy contender.

A game-changer in the making

The benefits of wider digital-currency adoption in South Africa are myriad. The transition could streamline financial transactions, reduce the costs associated with cash handling, and enhance overall economic efficiency. Digital currencies can also facilitate easier cross-border transactions and boost international trade.

Furthermore, the broader appeal of digital currency lies in its ability to promote greater levels of financial inclusion. In South Africa, where almost a third of the population is unbanked, digital currency has the potential to break through the barriers that prevent many from accessing traditional financial services.

In regard to a CBDC in particular, a currency of this nature would be regulated by the Sarb and backed by the government, providing a stable and secure alternative to physical cash. At least in terms of what a digital currency means for personal safety and the reduction of petty theft and armed robbery, the move could be revolutionary.

Many hurdles to clear

Like any other form of digital innovation however, there are a few clear hurdles. South Africa recently became the continent’s cybercrime hotspot. The past few years has seen a dramatic spike in phishing attempts, cases of identity theft, digital fraud, malware and ransomware.

Cybersecurity experts have been fast to react to this upsurge, but not before cybercrime put a damper on consumer trust and confidence. The digital currency innovators of the future will need to work hard to win the trust of the mainstream public and employ robust security measures to prevent that trust from being eroded by opportunistic criminals.

There’s also the issue of accessibility to consider. While on the one hand, digital currency could bring more people into the fold of economically active citizens, in another sense it could also widen the digital divide.

Digital currencies require robust technological infrastructure, including reliable internet access and digital literacy. In South Africa, where there are significant disparities in access to technology, with rural areas often lacking the necessary infrastructure, this digital divide could hinder widespread adoption and usage.

Leaders and decision-makers will need to make a concerted effort to tackle the country’s challenges head-on and provide for the regulatory clarity, infrastructural development and enhanced security measures that will earn South Africa its place in the digital sun. With the country’s thriving generation of innovators and digital pioneers, the end results may just surprise the world.