The South African government has announced that it is testing Central Bank Digital Currencies (CBDCs) to facilitate cross-border payments. The decision is seen to give a boost to financial institutions across the world to incorporate CBDCs and begin using the technology.
South Africa Restricts Non-CBDC Crypto
The South African government, in an effort to push its CBDCs, has introduced legislation that restricts non-CBDC crypto from being invested in pension funds. The new regulations are in sharp contrast to the older regulations that allowed portfolio managers to invest around 2.5% of funds into the category of “other assets,” which also included crypto assets. The new rules, however, exclude cryptocurrencies, citing a lack of protection.
The Fairfax County Police Officers Retirement System in the USA allows crypto assets to constitute a portion of the members’ money. Initially, the fund allowed 0.5% allocation in a fund investing in blockchain-related companies. Today, that figure stands at 7%.
South African regulators have repeatedly raised concerns regarding the volatility and speculative nature of cryptocurrencies. They have also flagged the lack of protection for investors. However, the government and regulators are exploring the use cases of distributed ledger technology. The regulators have cited Regulation 28 as it protects investors from investing too much in a single asset class.
Defining A Digital Asset
The South African Government has described digital assets as a digital representation of value that does not originate from a central bank. However, they recognize the ability for the asset to be traded, transferred, and stored electronically by legal citizens through the use of cryptography and distributed ledger technology.