When finance minister Enoch Godongwana presented his delayed budget speech on 12 March amid the furore over a proposed VAT hike, blockchain-based digital assets were the elephant in the room.
Despite the Intergovernmental Fintech Working Group (IFWG) publishing a position paper on regulating crypto assets in June 2021, little tangible progress has been made since then. Meanwhile, other countries are forging ahead with new regulations on blockchain-based digital assets, recognizing their potential benefits for economic growth and GDP.
The Current Regulatory Landscape
The Financial Sector Conduct Authority (FSCA) incorporated the crypto asset service provider (Casp) licensing regime under the Financial Advisory and Intermediary Services (Fais) Act in 2023 to grant players financial service provider licences. However, no other material developments have emerged from the IFWG.
South Africa’s grey-listing by the Financial Action Task Force (FATF) in February 2023 impacted the existing framework. The compliance burden now falls on providers to align with FATF on travel, know your customer (KYC), and anti-money laundering (AML) regulations.
Missed Opportunities
The government’s failure to integrate the digital asset sector into the formal financial services space and broader economy represents a missed opportunity to shore up falling tax revenues and reduce the widening budget deficit.
Realizing meaningful impact in terms of integrating digital technologies across diverse industries necessitates support from a digital economy. This involves the digitization of tangible entities, such as ownership, identity, data, and currency, all facilitated by blockchain technology.
Breathing New Life into the Economy
With the proper regulations, the burgeoning digital economy can breathe new life into South Africa’s ailing economy. While the crypto asset ship has not sailed just yet, the government needs to act sooner rather than later to unlock value from the sector.
Stagnation in the IFWG on critical areas such as exchange control regulations, authoritative guidance on tax implications, and tokenization of traditional assets is delaying the mass adoption of crypto initiatives, including payments.
The Need for Regulatory Clarity
Cryptocurrencies are not currently deemed currency and are excluded from exchange control regulations. The industry needs guidance and certainty from regulators to drive investment and innovation.
The industry desperately needs more active engagement and tangible efforts from the IFWG to support the adoption and expansion of crypto assets with balanced regulations that ensure stakeholder safety without stifling innovation.
Stablecoins: A Game Changer
The IFWG has expanded its scope to stablecoins, as detailed in the 2025 budget review. The group recently finalized a diagnostic of the domestic stablecoin landscape, which it plans to publish later in 2025. This is a welcome development for multiple reasons.
What Are Stablecoins?
Stablecoins are technically a type of cryptocurrency, but they are pegged to a reserve asset, such as a central bank-backed fiat currency, to maintain a stable value. Examples include tether and circle, US-domiciled stablecoins with a market capitalization of over $200 billion, backed by the US dollar.
Stablecoins differ from central bank digital currencies (CBDCs). While both aim to provide digital alternatives to traditional money, stablecoins are decentralized tokens used for crypto transactions, remittances, and decentralized finance. CBDCs are official digital currencies issued by central banks for payments and financial inclusion.
Benefits of Stablecoins
Unbacked crypto assets like bitcoin and ether serve as a store of value and medium of exchange, but their volatility precludes them from acting as a unit of account. Stablecoins address this issue by pegging their value to an external reference asset, creating opportunities for businesses to transact with massive potential benefits for cross-border trade.
Stablecoins in Practice
In 2022, Forvis Mazars in South Africa piloted an initiative to investigate the feasibility of accepting stablecoins as payment. The system enabled cross-border payments in a fiat-backed stablecoin between Asian and local entities. The transaction cleared within four hours, with the rand reflected in the local bank account on the same day. Traditional banking rails could have taken up to a week.
Given the speed and efficiency, it’s clear why stablecoin transaction values rose every quarter in 2024 to exceed the global volumes processed by Visa and Mastercard.
Cross-Border Trade Advantages
The ability to facilitate faster and cheaper cross-border remittance is particularly beneficial for a country engaged in international trade. Stablecoins can drastically reduce costs associated with paying for goods and services internationally. Migrant workers can also send money back to their families at a lower cost.
Numerous tech businesses want to invest in South Africa using cryptocurrencies as capital. However, digital assets do not currently meet exchange control regulations, limiting potential foreign investment.
Challenges and Solutions
Giving local businesses the ability to transact using stablecoins could boost exports and facilitate foreign inflows to grow the economy. However, South Africa needs a regulated environment integrated into practical processes to support stablecoin use.
Legacy Mechanisms
Legacy mechanisms make exporting goods complex. The process requires a SAD500 customs declaration form and a Unique Consignment Reference (UCR) code. Exporters cannot currently include stablecoins as a medium of exchange in these forms.
Additionally, as a decentralized medium of exchange, there’s no third-party provider to issue proof of payment. Without this, exporters cannot accept stablecoins for goods, despite the efficiencies.
Regulatory Clarity Needed
The IFWG must provide clarity on regulatory frameworks. It’s unclear whether the working paper due for release later this year will cover these issues. The government must expedite these matters and deliver firm resolutions.
Many countries have formalized these regulations, making South Africa a laggard in cryptocurrency-based fintech innovation. The opportunity cost is massive and continues to grow.
The Path Forward
South Africa needs an attitude shift that embraces the potential of cryptocurrencies and stablecoins, along with greater urgency in developing enabling regulations. Time will tell whether the IFWG can address the elephant in the room.
👉 Discover how stablecoins are transforming global finance
FAQs
What are stablecoins?
Stablecoins are cryptocurrencies pegged to a reserve asset, such as a fiat currency, to maintain a stable value.
How do stablecoins differ from CBDCs?
Stablecoins are decentralized tokens issued by private entities, while CBDCs are official digital currencies issued by central banks.
Why are stablecoins beneficial for cross-border trade?
Stablecoins enable faster, cheaper cross-border transactions compared to traditional banking rails.
What regulatory challenges do stablecoins face in South Africa?
Stablecoins lack recognition in exchange control regulations and customs documentation, limiting their use in trade.
How can South Africa catch up in fintech innovation?
By expediting regulatory clarity and embracing digital asset potential, South Africa can position itself as a fintech leader.
👉 Explore the future of digital assets
The author, Wiehann Olivier, is a partner and fintech and digital assets lead for Forvis Mazars.
### Key Features:
1. **SEO-Optimized**: Incorporated core keywords like "stablecoins," "South Africa," "crypto assets," and "cross-border trade" naturally.
2. **Engaging Anchor Texts**: Added clickable links with engaging anchor texts.