Standard Bank CEO likes central bank digital currencies – but not crypto

Standard Bank CEO Sim Tshabalala expressed his support for central bank digital currencies (CBDCs), arguing that they can reduce financial crime, increase participation in the formal financial system and facilitate interbank fund transfers.

A CBDC is a digital national currency where the money supply is controlled by a central bank such as the South African Reserve Bank (SARB).

Implementing a CBDC could allow for more oversight powers by the reserve bank as they could track money movement more accurately than with standard currency.

The Cato institute, an American think tank, said that implementing a CBDC could give central banks “absolute control” over the rules and regulations in place for the currency. 

They expressed concerns over the financial privacy implications of their introduction.

Tshabalala said that CBDCs could be useful. “They could exploit the self-verifying properties of Blockchain to simplify inter-bank clearing,” he said.

“We also think retail CBDCs could serve a social purpose, particularly by increasing participation in the formal financial system and by reducing opportunities for tax evasion and other forms of financial crime.”

Tshabalala said that there are many uncertainties surrounding CBDCs at the moment. 

For instance, he said it is not clear how balances held with commercial banks differ from other deposits.

He also said it is unclear how CBDCs balances held by an individual or a firm directly with the central bank differ from the central bank turning itself into a retail bank.

The value of implementing CBDCs would depend on whether the central bank was subject to the kind of regulation that private banks are subject to.

If these regulations were not in place, “then calling it a CBDC rather than a state-owned retail bank does nothing to mitigate the risk and moral hazards that an unfairly regulated institution could introduce into the financial system,” he said.

In contrast to his views on a state-controlled digital asset, Tshabalala expressed concern over privately generated crypto assets.

He said it is unclear how they address a legitimate social need, adding that there was strong evidence that they make it easier to hide or launder money. 

This, he said, pointed to the risk that crypto deposits or transactions could create for banks.