The South Africa Reserve Bank (SARB) will be exploring multiple use cases involving a wholesale CBDC and stablecoins among institutions in the next iteration of its digital ledger technology project, Project Khokha.
“In Project Khokha 2x, which will focus on wholesale CBDCs and stablecoins, we are thinking about the governance of the platform. Its design will consider interoperability with wholesale CBDCs and it follows decentralised, autonomous organisation principles,” noted the bank’s senior financial technology (fintech) analyst, Gerhard Van Deventer.
According to Van Deventer, the Khokha Council has given its approval for the project to experiment on commercial bank-issued stablecoins for the regional transfer of value. For example, using one bank in South Africa to settle with a bank in Kenya. However, it remains to be seen whether this type of settlement can occur on a private platform or if it needs to connect with the national real-time gross settlement system.
While speaking at a blockchain event held in Johannesburg, South Africa, Deventer said Project Khokha 2x will be exploring trade finance platforms.
“We are thinking more broadly than just money on a platform and trade finance is one of the use cases put forward where DLT would be of value because of the multiple role players and documentation, and all the processes involved,” – Deventer
The project will also consider how wholesale CBDCs, aside from being used officially for settlements, could also serve as collateral. This could mean that a smart contract could serve as a letter of credit.
Another use case to be experimented on is stablecoins in the banking industry and these are described to be similar to wholesale CBDCs that a central bank issues. Stable coins can be utilized in a variety of situations, including retail use cases, and the project will also assess how banks can maintain their relationships with their customers in such an environment, as noted by Van Deventer.
“We think the potential future is a multi-DLT world; hence, interoperability is quite important and had to be part of the design,” he noted when describing the design of Project Khokha 2x.
The official pointed out that South African regulators realized value from project Khokha 2, specifically, where a shared ledger provides one version of the truth and the SARB’s financial markets department benefitted from the operational data generated during Project Khokha 2. However the regulators believe more work is required to determine the way forward.
“Some of the key outcomes of Project Khokha 2 include that further work is required in terms of cost-benefit. We did not come to a conclusion of whether we need to move forward. This was an exploratory project and, among other reasons, regulators typically follow the market and there are questions about whether we should set a direction.”
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