Key Highlights
- South Africa’s Reserve Bank said that crypto and stablecoins pose a financial risk due to lack of rules.
- Stablecoin trading surged to 80 billion rand by October 2024, becoming the preferred trading option.
- New regulations are now being developed to monitor cross-border crypto trades and bring digital assets under oversight.
The South African Reserve Bank has warned that cryptocurrencies and stablecoins pose a risk to the country’s financial sector because there are not enough rules to oversee them. This warning was highlighted in the bank’s biannual Financial Stability Review which was released today, November 25.
Herco Steyn, the bank’s lead macroprudential specialist, said progress on new regulations is expected next year, but without a complete framework, “we do not have sufficient oversight.”
Digital Assets Can Bypass Exchange Rules
The bank said cryptocurrencies can be traded across borders without restrictions. Because South Africa’s exchange control laws do not cover digital assets, people can use them to bypass the rules. This could create problems for the financial system if crypto use continues to grow without proper supervision. The bank is keeping a close eye on this trend as more people start using digital money.
The Reserve Bank and the National Treasury are working together to make new rules. These rules will make sure cross-border crypto trades are monitored, and they will also change current exchange control laws so cryptocurrencies and stablecoins come under official oversight.
Stablecoins Surging Fast in South Africa
Stablecoins — digital tokens backed by assets such as US Treasuries, have grown in popularity since 2022. The central bank said these tokens have become the preferred trading option on South African crypto platforms, overtaking Bitcoin and other cryptocurrencies.
The shift comes after the crypto market experienced a massive loss, with Bitcoin dropping from an all time high of $126,000 in early October to now trading for $87,000, while Ether fell roughly 40% from its August peak.
According to data from CoinMarketCap, the stablecoin market currently has a market cap of over $313 billion.The trading volume of stablecoins has reached nearly 80 billion rand ($4.6 billion) by October 2024, compared with less than 4 billion rand in 2022. The bank said that as more people use crypto, the South Africa government needs to come up with a domestic regulatory framework to respond to market developments and risks.
South Africa’s crypto industry is dominated by three major platforms: Luno, VALR, and Ovex. By July 2024, nearly 7.8 million users were registered on these platforms, and total assets held on South African crypto platforms reached 25.3 billion rand in December 2024, according to SARB data.
Steyn also said that new technologies, like artificial intelligence and quantum computing, may create more risks in the future. The financial system must prepare for these challenges.
Also Read: Stablecoins Could Drain Bank Deposits in Eurozone: ECB
