SARB has taken these measures in order to add for investors and eliminate risk. Although it doesn’t currently regulate cryptocurrency transactions, the bank has stated that the introduction of an investigative unit, rather than premature regulation, is one way of promoting growth and innovation.
The new unit will be a non-state self-regulatory body aimed at overseeing further developments in the industry. The new self-regulatory organization (SRO) would establish its own “rules, directives and standards”. SARB’s director of banking practice, Bridget King, claims that there is a risk that early legislation could curb progress as the technology is moving so fast. She feels that it would be better to simply supervise to prevent legislation becoming quickly outdated and unworkable. King suggested “…if laws are drafted based on existing technology… by the time legislation is enacted, the legislation will be obsolete…”.
The unit’s Project Khoka plans to examine the use of Distributed Ledger Technology (DLT) as a method for processing secure payments. SARB will launch a proof of concept (PoC) to replicate interbank clearing. For this purpose, the bank has announced that it plans to use Quorum, an Ethereum blockchain-based system.
“The objective of the bank is to gain a practical understanding of DLTs through the development of a PoC in collaboration with banking industry… to replicate interbank clearing and settlement on a DLT which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs”, it said.
Another issue in South Africa has been cryptocurrency tax evasion. Yesterday, the country joined many others now requiring citizens to declare their cryptocurrency earnings for the purpose of paying income tax. The South African Tax Office (SARS) made the announcement on 6 April, but made it clear that it still doesn’t consider cryptocurrencies as legal tender.
Anyone being paid for goods or services in South Africa will now have to declare these earnings as they would ordinary income. Traders profiting from cryptocurrency sales will be liable for capital gains tax. This follows the announcement made last year that SARS wished to prosecute non-declaration of earnings through cryptocurrency trading.