In July, the South African Reserve Bank (SARB) signalled its intention to begin regulating virtual currencies. The announcement that the central bank would be trialling cryptocurrency regulations, with a view to officially approve their use, was welcomed by market commentators, many of whom had been critical of SARB’s reluctance to embrace non-fiat currencies sooner, writes FXTM’s Emma Davidson, Communications Manager.
Cryptocurrencies have caught the imagination of investors this year, with Bitcoin charting over 350% increases since January. It might sound like a bubble – a trend heading for a fall – but the currency has scope to rise even higher before the year is out. The deployment of the SwgWit2x solution, implemented on 11 August to improve trade execution speeds, sparked a buying rally that added 17% to Bitcoin’s value by the following Monday, 14 August.
South Africa might be arriving late to the blockchain party, but the nation could still emerge as a leader in the cryptocurrency field. SARB’s latest trial – a partnership with the blockchain solutions provider, Bankymoon – brings the country one step closer to a crypto counterpart for ZAR.
The concept of a national cryptocurrency began in 2015, with eDinar. Its launch made Tunisia the first country in the world to issue its national currency via blockchain technology. Tunisia, with a per capita GDP hovering around the $3700 mark, is hardly the posterchild for technological advancement, but eDinar offered crucial support to the 3 million Tunisians excluded from the financial system. The cryptocurrency can be used to pay bills, pay for goods and services, and transfer money – eDinar effectively had the same functionality as the Tunisian dinar, with the addition of a nominal transaction fee. And it was available to anyone with internet access.
In February, SARB announced that it was actively exploring the possibilities of blockchain technologies, with a view to develop a virtual currency of its own. Theoretically, a national cryptocurrency would mean faster transaction times, lower banking costs and increased access to banking facilities for individuals who struggle to connect with conventional banks. It would also reduce the incidence of counterfeiting and fraud, and make South African currency easier to obtain – a key measure for encouraging economic growth and maximising trading opportunities.
Of course, a blockchain ZAR (or its equivalent) is far from guaranteed. To date, the bank has simply committed to assessing how viable blockchain adoption would be for South Africa. However, it is an encouraging step forward, and aligns with recent advice from the International Monetary Fund (IMF) that central banks should embrace financial technologies to meet the changing needs of their consumers. SARB isn’t the only bank to announce plans to explore the technology, the State Bank of Belarus has recently implemented a blockchain-based information network, while the People’s Bank of China has reportedly developed a prototype cryptocurrency.
Barely eight years since its inception, Bitcoin (and blockchain technology) still has some hurdles to climb – concerns over how to increase transaction volumes are perhaps the most pressing – but it also presents significant benefits. If you’re looking for the next big banking revolution, you could do worse than to throw your lot in with virtual currencies. At FXTM, we have already introduced Bitcoin as a deposit and withdrawal method and are about to offer clients the option of trading cryptocurrency CFDs. This year’s rally of Bitcoin and other cryptocurrencies like Ethereum, coupled with international interest from Central Banks, suggests that the technology is not only here to stay – it’s likely to become a firm fixture of modern life.