The head of South Africa’s central bank insisted that regulators and policymakers should be involved in leading any potential move towards markets based on distributed ledger technology (DLT).
Reflect on the implications of innovation
South African Reserve Bank (SARB) Governor Lesetja Kganyago argued that central banks, regulators and policymakers should and must play a role in “framing a potential move to markets based on the DLT”.
According to Kganyago, these stakeholders can achieve this goal by “thinking about the implications of innovation, promoting responsible innovation for the public good”. Furthermore, they can also do so by “informing an appropriate policy and regulatory response”.
In his virtual address Following the launch of the Project Khokha 2 (PK 2) report, Kganyago shared his views on the future of central banks in a world based on the principles of decentralization. He said:
From a regulatory point of view, I think it is unlikely that decentralized markets are suitable in all cases or that decentralization will guarantee the achievement of public policy objectives such as consumer protection, financial stability as well as safety and soundness, which fall under the mandates of central banks and regulators.
The governor nevertheless concludes in his speech that the role of central banks and regulators should “evolve with financial markets” to ensure that they remain relevant in future markets just as they are now.
Experience No indication of support
Meanwhile, Kganyago revealed that during the second phase of the project, PK2 explored the implications of “tokenization in financial markets through a proof of concept (POC) that issued, cleared and settled SARB debentures using Distributed Ledger Technology (DLT).” PK2 also looked at “how settlement in central bank money and commercial bank money can happen on DLT.”
The SARB Governor clarified in his remarks that the PK2 experience “did not signal support for any particular technology” or a shift in policy direction.
According to Kganyago, in the initial experiment, dubbed PK1, the central bank and its partners had explored “the use of DLT for interbank settlements by successfully replicating some functions of South Africa’s Real-Time Gross Settlement (RTGS) system. on the DLT”.
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