Cryptocurrency demand to weaken effectiveness of central banks; CARWG South Africa cautions

South Africa, a nation with a significant amount of unbanked individuals, shockingly ranks among the top 5 countries when it comes to digital currency ownership. Moreover, the country was listed as the top in cryptocurrency ownership in 2019’s Global Digital Yearbook. Due to this high cryptocurrency demand in the country, a position paper published by South Africa’s Crypto Assets Regulatory Working Group (CARWG) should be highly regarded.

 

Cryptocurrency demand

Source: Statistica worldwide consumer survey

 

The position paper by CARWG on the regulatory framework of bitcoin and other digital assets in the country is a big step forward. The attention indicates that the authorities have noticed how important and mainstream the digital currency space has become for South Africans over the past couple of years.

 

Through the section on ‘The generic risks posed by the crypto assets,” the report by CARWG enlightens us on the threats posed by cryptocurrencies to the monetary policy transmission technique. The report highlights that the surge in cryptocurrency demand would result in the formation of a coequal shattered financial system. The report reads:

 

“The central bank’s role in ensuring an efficient monetary system could become less effective, as the demand for fiat currency would decrease and crypto assets would effectively compete with fiat currencies.”

 

BIS has also warned on the rise in cryptocurrency demand

In a similar fashion, the Bank of International Settlements (BIS) has also cautioned that the continued rise in cryptocurrency trading platforms and the emergence of other financial products related to digital assets, can raise concerns regarding financial stability and also increase the challenges threatening the banking system.

 

Additionally, the Financial Action Task Force (FATF) has also joined the bandwagon in criticizing digital currencies. According to FATF, digital currencies pose the threat of money laundering activities and the financing of terrorist activities. 

 

Nevertheless, the digital currencies industry in South Africa has been rapidly thriving. The majority of people believe the introduction of crypto regulations would massively curb the issue of crypto-related scams in the country. However, the CARWG report highlights that a revised policy bearing should be adopted, and the country’s authorities should introduce suitable regulatory retaliation to diminish such challenges. 

 

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