South Africa has taken one other step nearer to implementing its central financial institution digital foreign money (CBDC) because the South African Reserve Bank (SARB) concludes a technical proof-of-concept for the undertaking.
The undertaking, titled Project Khokha 2 (PK2), is the second section of SARB’s Project Khokha (PK1), launched in 2018. It experimented with distributed ledger expertise (DLT) for interbank funds’ settlement, efficiently replicating the banks’ “SAMOS” real-time gross settlement system.
This second section, PK2 was launched in February 2021 and examined DLT with clearing, buying and selling and settlement inside the proof-of-concept setting with trade individuals Absa, FirstRand, JSE Limited, Nedbank and Standard Bank who type the Intergovernmental Fintech Working Group (IFWG).
Using the expertise, SARB examined the issuance of debt devices and enabled two cost choices for settlement, a wholesale central financial institution digital foreign money (wCBDC) and a wholesale settlement token (wToken), a industrial financial institution issued type of non-public cash.
The proof-of-concept developed two DLT platforms, one which served as a decentralized buying and selling platform and the opposite which managed the CBDC.
A bidirectional bridge much like these utilized in DeFi when sending cryptocurrencies throughout totally different blockchains was additionally constructed, permitting portability of the CBDC between the 2 platforms.
The outcomes of the undertaking highlighted the regulatory, enterprise, and operational implications that DLT would have available in the market. A assertion by SARB summarized that the expertise would streamline capabilities carried out by separate infrastructures onto a single platform, doubtlessly decreasing price and complexity.
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In the report, SARB does level out that the brand new DLT platforms will should be built-in with legacy programs, with the prices of implementing the brand new platform positioned on the banks.
New requirements, up to date finest practices and new assist programs would should be established for the DLT infrastructure, in keeping with SARB. The reserve financial institution talked about that legacy and DLT programs may at all times should run side-by-side, stating:
“A transition to a DLT-based system requires careful planning and execution and may involve running a DLT-based system in parallel to the existing system for a while, perhaps indefinitely.”
Technical dangers associated to the reliability and safety of the software program bridge between platforms have been additionally famous, and the usage of the CBDC on networks outdoors of the 2 used within the proof-of-concept was additionally flagged as subjects for additional consideration.
SARB says additional work shall be undertaken to check the findings from this section of the undertaking and the authorized standing of the wCBDC, which shall be used to tell coverage and regulatory responses to DLT and CBDCs within the monetary markets.
It additionally hinted that one other section of Project Khokha could also be began to “build on the work of PK2, performing live transactions in a sandbox environment in a different use case”.
Since May 2021, South Africa has additionally been engaged in a preliminary research on a retail CBDC centered on its “desirability and appropriateness” no precise date is ready for the conclusion of the research, however SARB says it will likely be someday in 2022.