Virtual currencies are too risky, says Reserve Bank
It will be too risky for the South African Reserve Bank to start issuing virtual currencies or crypto-currencies at the moment.
So said Francois Groepe, deputy governor of the South African Reserve Bank, in a keynote address during the Strate GIBS Fintech Innovation Conference 2017 held in Johannesburg this morning.
Virtual currencies, also known as crypto-currencies, are mediums of exchange in cyber space using cryptography to secure transactions and control the creation of new units. Initially highly controversial, the best known is Bitcoin, though Ethereum and Litecoin are also widely used. Today, there are more than 800 virtual currencies in use around the world.
Groepe said although virtual currencies like Bitcoin are gaining popularity, the central bank needs to ensure such payment methods are not abused to fund illegal activities like money laundering or terrorism.
According to Groepe, the financial sector is witnessing several innovations and disruptions, spurred by virtual currencies.
"We are witnessing the disruption of financial services. Over the past decade or so, fintech's attention and publicity has continued to intensify and increase. It is continuing to usher in completely new ways of banking. Developments in the fintech space are part of an evolutionary process driven by innovations," he said.
He pointed out that it is, therefore, important for the regulators to take a three-pronged approach when dealing with the developments in the fintech space.
"These are developing analysis on activities that involved in the financial services; continuous collaboration between local and global regulatory authorities; and investigating and deciding on the most appropriate structures in order to keep abreast of fintech developments."
He noted the concept of virtual currencies is becoming more recognised as people become more familiar with the concept.
"Virtual currencies have the potential of becoming widely adopted. However, for the central bank to issue virtual currencies or crypto-currencies in an open system will be too risky for us. This is something that we really need to think about," said Groepe.
He added that regulators still lack a clear understanding of how virtual currencies work, thus it will be risky to start issuing virtual currencies.
According to Groepe, the South African Reserve Bank recently created a three-member team to look into how virtual currencies work.
He said the central bank is also looking to introduce virtual currency 'sandboxes' to test how the currencies work.
A 'regulatory sandbox' enables businesses that provide virtual currency exchange services to experiment and test new products, he pointed out.