South Africa's central bank is raising concerns about the potential risks cryptocurrencies and stablecoins pose to the nation's financial stability. The South African Reserve Bank (SARB) highlighted these digital assets as emerging threats, particularly due to the lack of a comprehensive regulatory framework.
In its biannual Financial Stability Review, the SARB emphasized that the absence of a full regulatory framework for crypto assets is becoming a significant risk. This concern is amplified by the increasing shift of traders towards stablecoins, which are often linked to the U.S. dollar, as opposed to more volatile cryptocurrencies like Bitcoin.
SARB's lead macroprudential specialist, Herco Steyn, pointed out that cryptocurrencies are borderless, rapidly evolving, and entirely digital. This poses a challenge to South Africa's existing exchange control rules, which were not designed to handle such assets. Steyn stated that "Without a complementary and full regulatory framework, we do not have sufficient oversight".
The rise in stablecoin adoption, particularly in countries with restricted access to foreign exchange, indicates that consumers are seeking to "manufacture" foreign exchange outside of central bank controls. According to Governor Lesetja Kganyago, the creation of stablecoins, especially those pegged to the dollar, could undermine African currencies. He expressed worry that some countries might lose monetary sovereignty as individuals use these digital assets to circumvent traditional currency markets. Kganyago also mentioned that people are using stablecoins to short currencies, which is more common in countries facing foreign exchange shortages.
Global lender Standard Chartered has also warned about the potential for U.S. dollar-backed stablecoins to draw deposits from emerging markets, potentially reaching $1 trillion in the coming years. They noted that approximately 99% of all stablecoins are pegged to the dollar, making them attractive to savers in countries experiencing currency crises. South Africa, along with Brazil, Kenya, Morocco, and Egypt, are considered particularly vulnerable due to their large budget and trade deficits, especially in the event of capital flight.
To address these concerns, the SARB and National Treasury are collaborating on new regulations aimed at tightening control over cross-border crypto flows and bringing digital assets under exchange-control regulations. The SARB has already established a framework to recognize stablecoins and other crypto assets as financial instruments. This allows regulators to monitor their usage within South Africa and protect users. Kganyago has suggested that instead of banning crypto and stablecoins, affected countries should focus on reforming their domestic currency markets to restore faith in local currencies. In South Africa, cryptocurrencies have been classified as assets rather than currencies to protect the public.
Many emerging market central banks are also considering digital versions of their fiat currencies. However, some economists suggest that these digital currencies could also attract money away from commercial banks, as they would effectively be government-backed. The use of stablecoins in South Africa has increased, reaching nearly 80 billion rand in 2024, which has prompted the watchdog to plan stricter regulations for cross-border crypto transfers.
