[WATCH] South Africa Releases Project Khokha 2 Report – Summary and Key Findings

The South African Reserve Bank (SARB), in conjunction with the Intergovernmental Financial Technology Working Group (IFWG), has released a second report for the Khokha Project, examining the use of distributed ledger technology for settlement interbank payments.

Project Khokha 2, which is the second phase of national trials of an interbank settlement system, was launched in February 2021 and involved the creation of two forms of token currency to enable settlement between financial institutions.

The first was a tokenized form of central bank money, which was a liability of the apex bank issued on a specific distributed ledger technology (DLT) owned and operated by the bank. It was used to buy SARB debentures in the primary market. A debenture is a type of debt security that is not backed by any collateral and generally has a term of more than 10 years.

The second was issued by commercial banks as a stablecoin and used to buy SARB debentures in the secondary market. Participating financial institutions included:

  • Absa
  • FirstRand
  • NedBank
  • standard bank
  • JSE

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SEE ALSO: Reserve Bank of South Africa Among 4 Central Banks Building ‘Project Dunbar’ – A Common Digital Currency Platform

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Main conclusions

According to SARB Governor Lesetja Kganyago:

  • The bond token market benefited from a risk-free settlement asset in the form of a central bank wholesale digital currency used for settlement. This has reduced the risk of settlement, specifically that the payment may fail or be uncertain due to the risks associated with the settlement asset.
  • The bank also concluded that building a platform for a tokenized security would impact existing participants in the financial market ecosystem, as several functions currently performed by separately licensed market infrastructures could be performed. on a single shared platform. This has the potential to reduce both cost and complexity.

Speaking about the project, Lesetja said:

“The PK2 report is the SARB’s contribution to broader discussions regarding the regulatory treatment of crypto assets and innovation in financial markets. We hope it will provide meaningful insight into the discussions taking place between policy makers and regulators as they continue to consider the most appropriate way to modify existing national legal and regulatory frameworks.

– Governor, Reserve Bank of South Africa (SARB)

The latest report is seen as a major step towards the Southern African nation’s implementation of its central bank digital currency (CBDC).

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RECOMMENDED READING: Reserve Bank of South Africa launches feasibility study for general purpose central bank digital currency

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