According to a statement from the bank, the study will focus on the issuance of a domestic CBDC that can be used by consumers in South Africa for general retail purposes.
The concept of a CBDC is inspired by cryptocurrency, but is different insofar as it is backed by a country’s government. In the past year, cryptocurrencies such as bitcoin and ethereum have made meteoric market gains, partly sparked by Covid-19, spurring many to take the future of digital money more seriously.
In a CBDC system, a payment is a transfer of a central bank liability, recorded on a ledger. The ledger could be centralised, decentralised — through the use of distributed ledger technology — or a combination of the two. Cryptocurrencies are presently the main users of distributed ledger technology.
“A retail CBDC can be defined as a digital form of cash aimed at providing the best attributes of both cash and electronic payments. The objective of the feasibility study is to consider how the issuance of a general-purpose CBDC will feed into the Reserve Bank’s policy position and mandate,” the bank explained in its statement.
By embarking on the feasibility study, the reserve bank has officially joined the CBDC race. China has already pulled ahead of other major economies by creating and trialling its own CBDC. The People’s Bank of China has been working on the project since 2014.
Last month, the Bank of England and the UK treasury announced the joint creation of a CBDC taskforce. In a statement, the Bank of England says it envisions the UK’s CBDC would exist alongside cash and bank deposits, rather than replacing them.
In its statement, the reserve bank clarified that the CBDC feasibility study differs from the longer running Project Khokha.
If successfully implemented, a distributed ledger could be used to make real-time interbank transfers by bypassing the central bank as an intermediary. The results of the project showed that the typical daily volume of the South African payments system could be processed in less than two hours with full confidentiality.
Earlier this year, the working group announced the second phase of the project which will issue, clear and settle debentures — a type of debt instrument companies issue to raise capital — on a distributed ledger using tokenised money. Absa, FirstRand, Investec, the Johannesburg Stock Exchange, Nedbank, Standard Bank and Strate are all participating in Project Khokha 2.
The reserve bank said in Tuesday’s statement that it envisions both studies will result in better policy alignment and co-ordination.
According to the statement, the CBDC feasibility study is expected to be concluded in 2022. The reserve bank has, at this stage, made no decision to issue a retail CBDC.