- Speaking at the World Economic Forum in Davos, Switzerland, the governor outlined South Africa’s plans to roll out a CBDC
- The apex bank is eager to launch a Central Bank Digital Currency but will not rush to introduce it or immediately enforce its acceptance with legislation
- Fast following is lauded in business because it allows those practising it to learn from the mistakes that come early in the process of adopting an idea
South African Reserve Bank governor Lesetja Kganyago has indicated that the institution will be a fast follower when introducing a Central Bank Digital Currency (CBDC) rather than an early adopter.
Speaking at the World Economic Forum in Davos, Switzerland, the governor outlined South Africa’s plans to roll out a CBDC. According to Kganyago, the apex bank is eager to launch a CBDC but will not rush to enforce its acceptance with legislation.
South Africa has been at the forefront of cryptocurrency-related developments on the continent. The first African country to provide both tax and legal status for cryptocurrency has paved the way for significant retailer Pick n Pay to expand a crypto payments pilot project. It is a marked difference in approach, wanting to take a fast-follower approach with a CBDC.
CBDC progress is slow at best
CBDCs haven’t exactly had a good start in Africa. Nigeria’s eNaira performed dismally in its early months, with an adoption rate of around 0.5% of the population. Contrast this with a cryptocurrency adoption rate of around 10% despite a crypto ban. The eNaira ranked number one on PwC’s 2022 CBDC Global index.
Ghana’s eCedi has stagnated in testing for some time. Meanwhile, the ambitious Central African Republic has delayed listing the Bitcoin-backed Sango coin on exchanges. Further afield, Central Bank Digital Currency pioneers in the Bahamas have seen slow adoption of the Sand Dollar. Fairing much better with an estimated 20000 users out of a population of roughly 400 000, giving it an adoption rate of approximately 5%. Recent trouble with FTX spilt over to affect the Bahamanian sand dollar.
China’s digital Yuan seems to be fairing much better in adoption, with claims of 260 million users in January 2022. This places the adoption rate at a little over 18%. What is abundantly clear is that CBDC adoption is not going to be a walk in the park, at least in the present status quo. There are still a few things that need to be figured out to entice widespread adoption and usage of CBDCs worldwide.
As the conversation around the digital Euro gains momentum, the SARB may have another case study to learn from. And this may be more of what is needed to create a good CBDC that is truly useful to users. China’s latest push to encourage usage of the Digital Yuan is allowing users to send hongbao (red packets), gifts traditionally given as money during the Chinese New Year. Fast following seems the appropriate course of action for the South African Reserve Bank.
Project Khokha CBDC and Project Dunbar
The continues to be a lot of work being done with CBDCs across the world. Close to 100 countries are working on CBDCs, with somewhat of a race to introduce them. One of these projects is South Africa’s project, Khokha. The project concluded with proof of concept for a wholesale Central Bank Digital Currency. South Africa was also involved in the international project Dunbar which tested the transferring of CBDCs across borders and between blockchains. The project proved that there were multiple ways to send CBDC across borders. Involvement in these projects shows just how seriously South Africa has taken the issue of developing a CBDC and the testing involved in getting it right.
Benefits of fast following
Fast following is lauded in business because it allows those practising it to learn from the mistakes that come early in the process of adopting an idea. This is mainly beneficial where pitfalls or other unforeseen factors come with implementing the idea. This idea runs juxtaposed to the first mover advantage, which says that those who introduce ideas first have a better chance of achieving user adoption. In the case of launching a CBDC, however, the South African Reserve Bank does not have a direct competitor, so gaining the market isn’t the primary concern; getting it right is.