The push to implement a central bank digital currency (CBDC) is gaining traction amongst most apex banks globally as South Africa is nearing its first stage of developing a CBDC.
Following the South African Reserve Bank’s (SARB) conclusion of the Proof-of-Concept (POC) for the digital token project dubbed “Project Khokha 2”, which is the second phase of the project that began in 2018, the second phase is now in focus.
The first experiment was with the distributed ledger technology, the DLS, which was initiated for payment settlement between banks in South Africa as a replica of the banks’ previous payment settlement system.
Launching of the Second PK2 Phase
Last February, the second phase of the PK2 project was launched in line with the tested DLT trading and settlement system within the PoC ecosystem. Some of the participants in the project include FirstRand, Absa, JSE Limited, Nedbank, and a host of others.
To test the efficiency of the new technology, the SARB undertook various tests for the issuance of debt tools, enabling two option settlements and other forms of institutionally acceptable legal tender.
Moreover, the PoC developed additional DLT platforms to serve as a decentralized trading exchange, and the other is to manage the CBDC.
A multi-dimensional bridge akin to the ones adopted in decentralized finance (DeFi) for sending digital tokens across multiple blockchains was also developed, which allows for the movement of the CBDC across platforms.
Meanwhile, the project’s outcomes also highlight the implications associated with the DLT that would arise in the future once it is released to the market. SARB quickly dismissed a statement to ease people’s worries by noting that the technology can streamline functions carried out by different infrastructures onto a single protocol, effectively reducing cost and other complex issues.
Banks to Bear Some Cost
SARB points out that the newly developed DLT platforms need to be integrated with legacy systems in the concluding report. The banks’ ensuing cost of the implementation is to be bored.
New operations patterns need to be established for the new infrastructures to function; the reserve bank noted that both the legacy and the DLT systems might have to be operated side by side before a parallel pattern of operation can be developed for all.
Technical risks that have to do with the reliability and security of the new DLT infrastructures and the use of CBDC on networks other than the PoC were also considered for further deliberation.
The reserve bank admitted needing additional time to study the results from this phase and the legal status of the competing digital token, which will be adopted to make policies and regulatory frameworks for DLT and CBDCs in the digital financial assets market.
Going by the actions of the SARB, it seems another phase of the project, Khokha, may be initiated to upgrade the work of PK2 by integrating transactions into a Sandbox ecosystem. The study might take some time to conclude.