CBDCs are useful but are not an immediate priority — SARB

The South African Reserve Bank says that although retail central bank digital currencies (CBDCs) could help address gaps in the country’s payment system, developing one is not a priority for now.

Instead, the bank will focus on strengthening its existing digital payment innovations to improve the financial system.

The details  

The South African Reserve Bank disclosed this in a newly released position paper and background note, published together late last month to outline its recent work on CBDCs and digital payments.

• The bank admitted that the country’s payments ecosystem could use an innovation such as CBDCs to improve financial inclusion and enhance faster payments. 
• CBDCs also offer the bank a way to maintain monetary policy sovereignty in a country increasingly turning to cryptocurrencies and make the bank relevant in the digital world. 

More context 

According to the bank, despite innovations in digital payments and growth in their adoption and use, cash remains the most preferred medium of exchange.  

• This is crucial for people in technologically underserved areas, who also make up most of the 16% of the country’s adult population still unbanked. In addition, a large proportion of people who have bank accounts do not use them much. 
• SARB thinks CBDCs can solve these issues by providing a more secure and easily accessible alternative at less cost to the consumer. 
• Already, the bank has carried out a feasibility study on CBDCs, the findings of which revealed that the bank can issue CBDCs “in a way that meets regulatory frameworks without hindering the SARB’s policy goals.” 

SARB’s alternative initiatives 

Regardless, the bank is unsure whether it can run a CBDC project alongside other initiatives it has embarked upon to develop the country’s National Payments System (NPS). 

• This includes an NPS bill proposing changes to the country’s banking system and Project Stimela, which the bank designed to fast-track the adoption of digital payments. 
• In 2023, SARB also launched PayShap, a mobile money-like digital payments system that allows instant money transfer between different banks using account and mobile numbers. 
• These initiatives, according to the bank, are designed to fix the inefficiencies of the country’s payment system, a scenario that will leave CBDCs redundant. 

CBDC is not the answer 

SARB is unconvinced that CBDCs can displace cash as a preferred method of payment because a viable CBDC would need several other factors in place for it to be effective. 

• This covers features such as offline usability via USSD or physical cards, broad acceptance, a simple interface, and privacy safeguards, though the bank has signaled it is unwilling to guarantee full privacy.
• While the bank expressed its capability to fix these issues in the event of a CBDC launch, it believes that this will require significant work in collaboration with other agencies. 
• SARB also alluded to a lack of reference points in terms of countries globally that have successfully implemented CBDCs for it to take lessons from. 
• The bank will instead shift attention to studying wholesale CBDCs, having done the groundwork in its exploration of a retail CBDC. 

Zoom out 

South Africa has joined the list of African countries delaying the rollout of a CBDC after initially signaling an intention to launch one.

• Ghana, despite apparent successful pilots of the eCedi and a promise to launch before the end of 2025, has not rolled out the CBDC. 
• According to the Bank of Ghana’s president at the time, the bank held off on the launch regardless of the successful pilot because of a ‘dislocation’ of the economy. 
• Nigeria was the first African country and only the second in the world to launch a CBDC when it commissioned the eNaira for use in 2021 but has recorded little success in terms of adoption.