The South African Reserve Bank (SARB), in collaboration with the Intergovernmental Fintech Working Group (IFWG) have released a second report for Project Khokha, looking at the use of distributed ledger technology for interbank payments settlement.
Project Khokha 2, which is the second phase of the country’s trials of an interbank settlement system, was launched in February 2021, and involved the creation of two forms of tokenized money to allow for settlement between financial institutions.
The first was a tokenized form of central bank money, which was a liability of the apex bank issued on to a specific distributed ledger technology (DLT) owned and operated by the bank. It was used to purchase SARB debentures in the primary market. A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years.
The second was issued by commercial banks as a stablecoin and used to purchase SARB debentures in the secondary market. Participating financial institutions included:
- Absa
- FirstRand
- NedBank
- Standard Bank
- JSE
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Key Findings
According to SARB governor, Lesetja Kganyago:
- The debenture token market benefited from having a riskless settlement asset in the form of a wholesale central bank digital currency used for settlement. This reduced the settlement risk, particularly that payment might fail or might be uncertain due to riskiness in the settlement asset.
- The bank has also concluded that building a platform for a tokenised security would have an impact on the existing participants in the financial market ecosystem, as several functions currently being performed by separately licensed market infrastructures could be carried out on a single shared platform. This has the potential to reduce both costs and complexity.
speaking about the project, Lesetja said:
“The PK2 report is SARB’s contribution to broader discussions surrounding the regulatory treatment of crypto assets and financial market innovation. We hope that it provides meaningful insight to the discussions taking place between policymakers and regulators as they continue to consider the most appropriate way to amend the existing domestic legal and regulatory frameworks.”
– Governor, South Africa Reserve Bank (SARB)
The latest report is seen as a major step towards the Southern African nation implementing its central bank digital currency (CBDC).
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RECOMMENDED READING: The South African Reserve Bank Commences Feasibility Study for a General-Purpose Central Bank Digital Currency
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