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When the South Africa Reserve Bank (SARB) tightens monetary policy by raising interest rates, our monthly bond instalments get pricier, our floating rate assets look juicier to foreign investors, and the future cash flows from businesses are less worthy.

In other words, the actions of our central bank, and their global peers, reverberate through our economy, creating opportunities for those who understand the change they bring, and risks for those who don’t.

The SARB’s experimentation with a Central Bank Digital Currency (CBDC) is a financial fancy with significant disruptive potential. We should pay it attention. 


What is a CBDC?

The best way to understand something is often to compare it to things you already understand. Here are the ins and outs of a CBDC explained via comparison.

  • CBDC v physical cash

    The simplest way to think of a CBDC is as the digital cousin of hard cash. Both are issued and backed by central banks, both serve as a store of value and medium of exchange. The key difference is anonymity – CBDCs leave an electronic paper trail when changing hands; cash leaves no trace.

  • CBDC v digital cash

    The cash in your bank account – if there’s any left these days – is the second cousin. Surprising given they’re both digital, but there’s a big difference: if a bank collapses (think SVB), you may not get your deposits back, whereas CBDCs are backed by central bank and are essentially the same as having the physical cash, as long as you have them secured in your wallet or account.

  • CBDC v cryptocurrency

    In part, central banks are mulling the mint of CBDCs because widespread cryptocurrency adoption would threaten their mandate of price/financial stability. The two payment systems are distant, estranged cousins. While they might have blockchain in common, the value of a CBDC is pegged to the currency of the issuing central bank; crypto values swing on sentiment. CBDCs will be comprehensively regulated; crypto less so.

CBDCs compared to other currencies

The table below summarises the differences and similarities between CBDCs and their relatives.


  Physical cash  Digital cash (deposits)  CBDCs  Cryptocurrencies 
 Issuer Central Bank Central Bank Central Bank  B2B/P2P
 Store Coins & banknotes  Electronic register Electronic register/blockchains  Blockchains
 Anonymity Yes No (your bank has visibility)  No (the Central Bank has visibility)  Yes
 Accesibility N/A Bank account E-wallets/mobile appsE-wallets/mobile apps/digital  platforms
 Interest bearing  No Yes Maybe No (unless yield-farming)
 Convertible to cash N/A Yes Yes Not easily
 ValueInfluenced by Central Bank and market supply & demandInfluenced by Central Bank and market supply & demandInfluenced by Central Bank and market supply & demand Market supply & demand
 Regulation High High High Low


There are two types of CBDCs in the mix: retail and wholesale. The former is designed for use by individuals and businesses; the latter is suited to financial institutions like banks and clearinghouses that want to reduce settlement risk and time lag for large flows of money.

Now that we know what a CBDC is, let’s apply an old-school SWOT analysis to the new-school payment system.

CBDC strengths

Currencies exist to enable commerce. The more confidence people have in the value of a currency, the more commerce gets done in that currency. And because CBDCs are backed by central banks, confidence in their value should be higher than physical cash or that held by a bank.

What else hampers commerce? Too many middlemen. CBDCs and the rails they run on will be designed to move value between parties with fewer intermediaries slicing at the pie, increasing the incentive to transact.

CBDCs also give central banks – and their governments – visibility of and control over transactions. That is both a blessing (less illicit trade) and a curse (loss of privacy / more Big Brothers).  

CBDC weaknesses

For a currency to be effective, it must have the confidence of many. That’s the biggest existing weakness of CBDCs – very few people are using them, which undermines their commercial usefulness.

Countries like Canada have tested their market and found no compelling need for a CBDC at present, while the Nigerian e-Naira, launched in October 2021, has failed to gain traction. Why might adoption be slow?

  • People like the anonymity of hard cash.
  • People don’t trust their governments.
  • People are worried about cyberattacks.
  • People are stuck in their ways.

To be sure, a gradual uptake of CBDCs would be best; if consumers were to rapidly exchange their bank deposits for CBDCs it could severely curtail the ability of commercial banks to lend money to people and businesses, a critical enabler of economic growth and financial stability.

CBDC opportunities

There are several, largely hypothetical, use cases for CBDCs. For the purposes of self-interest, let’s focus on those most relevant to emerging markets like South Africa.

Reducing inequality

The advent of mobile money has given millions of previously unbanked South Africans and informal businesses a way to send, receive, save, and borrow money. Aka financial inclusion. In theory, CBDCs would be able to do what mobile money does, but with lower transaction costs, faster settlements, and less risk.

“There is significant opportunity to de-cash existing transactions, providing the same level of anonymity as cash,” says John Elliott, Head: Fintech and Open Banking Partnerships at Investec. 

He provides the following example: “Think about the 90-year-old grandmother who pays to travel 50km by taxi to Umtata on SASSA grant day, only to wait for hours in a queue.  If she trusts a digital rand and feels safe and secure with it, it has huge implications for our society.  She can be paid directly, without having to leave her home, and can transact with confidence in her local economy.” 

There are other opportunities that may present themselves down the line. 

“The nature of a digital currency would allow for the money to become smarter – for example if a grant is meant for childcare, the money can only be spent on items that meet that category,” explains Elliott  While that could be a bit paternalistic, that’s one for the politicians to sort out – the point is that digital currency has the ability to allow for really smart targeting of money, especially when it’s coming from the public purse.

John Elliott, Head: Fintech and Open Banking Partnerships at Investec
John Elliott, Head: Fintech and Open Banking Partnerships at Investec

There is significant opportunity to de-cash existing transactions, providing the same level of anonymity as cash.

Better cross-border payments

How many intermediaries does it take to complete a cross-border transaction? Enough to slow down settlement and make them expensive. South Africa is one of the most costly G20 countries to send money cross-border, with remittances costing roughly 7% more when compared to developed markets.

CBDCs don’t need payment processors and correspondent banks, resulting in a faster, safer and cheaper payment rail. Countries with CBDC infrastructure in place will naturally be able to trade more easily with global partners.

Improved tax collections

If our revenue service had their way, we’d live in a cashless society; it would make collecting taxes so much easier if there was an electronic paper trail for every transaction. That’s one of the reasons that CBDCs are unlikely to replace cash altogether – too many people think paying their taxes is optional.

Faster and more effective relief

When the next pandemic hits, those with CBDC accounts will be able to receive financial relief directly from the central bank in a timely manner, sans a corruption tax.

Innovation and growth

The development and implementation of CBDCs would require significant investment and should spur innovation in areas like cryptography and programmable money. If CBDCs result in more people being banked, it would also create an opportunity to offer them financial services.

CBDC threats

The risk of government-sponsored hackers (especially the vodka-sipping kind) climbing over or under the firewalls of other countries is non-zero. What is to say they couldn’t steal CBDCs?

Sure, if CBDCs end up running on blockchain technology such heists would be difficult. But no guarantees can be made – digital deviants have a knack of being one stroke ahead of the good guys building the ramparts.

The complexity of regulating CBDCs and competition from established cryptocurrencies are two external threats to keep in mind.

“Perhaps the biggest risk facing retail CBDCs is the institutional capability of central banks,” says Elliott.  “Central banks are ill suited to dealing with volumes of retail clients, answering calls, KYC and the like.  To take on administering this overnight would be a gargantuan task – which underscores that it is likely that existing firms, and some new ones, will act as service providers between consumers and the central bank.  Much like when you draw money at an ATM today.”

How close is South Africa to having a CBDC?

Speaking on a panel at the World Economic Forum 2023 Annual Meeting in Davos, SARB Governor Lesetja Kganyago said South Africa will be “very fast followers” in the development and implementation of CBDCs, learning from leaders like Australia, India and Japan.

Kganyago said that locally demand from the public for CBDCs still needs to be established:  “Is this a solution looking for a problem or do we have some real problem that we are trying to solve?”

South Africa has been involved in three CBDC projects: Project Khokha 1 and 2 (PK1 and PK2) and Project Dunbar.

PK1 explored a wholesale CBDC to replace high value settlement on SAMOS, while PK2 explored the impact of distributed ledger technology (DLT) on the trading, clearing, and settlement of financial assets using a wholesale CBDC and/or the tokenisation of those financial assets. It set out to test the following:

  1. Could it lower the barriers to entry for new payments systems?
  2. Could it simplify reconciliation in settlement processes?
  3. Could it increase transparency around the holdings of financial securities?
  4. Would it help prepare local markets for the growing global adoption of wholesale CBDCs?

The answers to those questions are, unsurprisingly, qualified yeses. If you want to get into the weeds, best to read this report

Project Dunbar was a collaboration between the SARB and the central banks of Australia, Malaysia, and Singapore, and the Bank of International Settlements in Basel. Its objective was to explore the use of a shared platform, using CBDCs, to enable faster and cheaper cross-border transactions. It set out to answer the following:

  1. Which entities should be allowed to hold and transact on the shared platform?
  2. How could cross-border payments be simplified while respecting regulatory differences?
  3. What governance would give countries comfort to share payments infrastructure?

Again, if you want a deeper understanding of the answers, read this report.

If reading reports isn’t your thing, then here’s the superficial takeaway: Both the launch and adoption of a CBDC in South Africa will take time. But as with all new technology that makes things better, there’s an inflection point somewhere in the future where the use of CBDCs could accelerate rapidly

Best to be prepared for that.