The South Africa Reserve Bank (SARB) has published a tender notice seeking ‘prospective solution providers in anticipation of a feasibility project on a digital currency.’
The SARB, in a statement, said:
“The primary aim of the project is for the SARB to investigate the feasibility and desirability of central bank issued digital currency to be used as electronic legal tender, complimentary to cash. Although this project will be managed as a discreet set of activities within its own agreed set of milestones and deliverables, it is deemed part of the overarching SARB Fintech Programme.”
It further stated:
“During the execution of this project, interaction will be required with the Fintech Unit and programme team in order to exchange and benefit from the skills, learnings, approach and policy determinations that emerge from both streams.”
According to the tender notice, the proposed Central Bank Digital Currency (CBDC) requirements have been described as below:
A possible alternative scenario is for the SARB to back the CBDC 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 CBDC must be limited as determined by applicable monetary policy.
It must be possible to issue and distribute CBDC 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.
CBDC must be complementary to cash and is not intended to replace cash. However, it is expected that CBDC would influence the movement of cash or even displace cash to some extent over time.
CBDC must be a liability on the SARB balance sheet.
CBDC must be issued at one-to-one parity with the rand.
Transacting with CBDC must be free to the consumer, or at a very low cost significantly below current payment channel fees.
CBDC must offer value or an incentive to promote its use, including a lower cost to the industry compared with the cost of cash.
CBDC must be ubiquitous and accepted as a means of payment by all sizes of business and by the government.
CBDC must not introduce the risk of destabilizing 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 CBDC, thereby skewing the ability of commercial banks to provide credit.
CBDC must provide the opportunity for stakeholders to innovate in terms of payment products, but must not be seen to dis-intermediate commercial banks.
CBDC 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 CBDC without the need for a bank account.
Consumers and businesses must be provided with the channels to obtain or return CBDC in exchange for cash and commercial bank money.
CBDC must be freely and seamlessly interchangeable between an account-based store of value and a tokenised store of value. CBDC 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.
CBDC must be branded and its ownership by the SARB as issuer must be evident.
CBDC must be unique in its design and its SARB ownership must be clear and evident.
CBDC must be 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.
It must enable immediate person-to-person transfer of value without clearing and settlement in today’s terms.
It must be possible to set limits for CBDC transaction values and to implement
graduated regulation depending on transaction value.
CBDC payment products should enable transaction notifications to consumers.
CBDC must be accepted and usable at all levels of transactions, in the same way cash is accepted and usable at all levels of transactions.
CBDC must provide real-time, final and irrefutable transfer of value.
It must be able to operate on a peer-to-peer (face-to-face) basis as well as online. In the absence of connectivity/Internet/data, consumers must be able to transfer value to each other or to a business. This implies that mechanisms will be required to enforce offline transaction limits, prevent double-spending, and reconcile transaction data once online.
The government must be able to make payments in CBDC.
Interoperability principles must enable CBDC to be used at all levels throughout the payment system.
The CBDC value transfer mechanisms must prevent double-spending.
Auditability and Traceability
CBDC must be traceable.
CBDC must be auditable in terms of proof of issuance and ownership.
Auditability of transactions should be parameterised in order to determine the balance between anonymity of the transacting parties and traceability of funds transfers.
It must be possible to issue a consumer with a ‘proof of payment’ from transaction audit trails.
It must be possible to recreate a consumer’s ‘electronic vault’ or ‘e-wallet’ in the case of loss caused by technology failure.
CBDC must be issued using highly secure and trusted modern cryptographic mechanisms.
CBDC must be generated/created during its issuance as a secure discreet offline activity and not as a mining operation such as those deployed for private virtual currencies.
CBDC must not be easily counterfeited.
CBDC must be configurable in its design features in order to keep pace with improvements in technology and security mechanisms.
It must be possible to withdraw/revoke a CBDC by serial number in case of proven or suspected counterfeiting or theft.
General and Non-Transactional
The ability to transact with CBDC must be ‘always on – in real time, 24 hours a day, 7 days a week.
The CBDC data structure must allow open access to third-party service providers to add value. In general, the CBDC must be designed to encourage innovation and enable value-added services.
There are no expectations of the technology platform having to be based on DLT, blockchain or an existing ‘traditional’ technology. It is envisaged that a solution could be based on any one or a combination of technologies.
CBDC must be simple and user friendly.
CBDC transactions must be fast and efficient.
Consumers must be able to transact in CBDC using smart phones and unstructured supplementary service data.
Processes must be provided to manage technology upgrades. This implies that it must be possible for CBDC tokens to be withdrawn from circulation and replaced with newly issued, more advanced CBDC.
SARB is proving to be among the first banks in Africa, and globally, to consider launching a digital currency, essentially a cryptocurrency, essentially enabling and legalizing P2P value transfer within its borders.