Lower costs and better access to investment are fundamental for growth and jobs. Those advantages become reality when you apply the appropriate technologies. But technology can be risky and everyone prefers a stable hand to help guide the process.
The South African Reserve Bank knows this, which is why it pioneered Project Khoka, initiated in order to drive consensus and adoption of blockchain systems throughout SA’s financial sector. It is a highly proactive action, similar to other astute emerging markets such as Dubai and Singapore.
Blockchain or distributed ledger systems are fairly new.
Setting aside all the buzz around cryptocurrencies, at its root a blockchain system is a fantastic trust authority that is based on a transparent smart contract. Many different systems maintain a ledger independently from each other, so a transaction can be vetted automatically by simply comparing ledgers. In other words, no cooking the books because as has been famously quipped, a computer can’t take an envelope!
What is so special about this? Andries Brink, CEO of Andile Solutions, explains: “Blockchain is a whole new way to enforce trust. It disintermediates the middlemen and instead uses a ledger replicated between many different machines to underwrite something’s veracity. This increases the speed of agreement between parties and, when designed properly, drastically reduces the costs involved.
“Through smart contracts, it can protect lenders and borrowers alike, creating an optimised environment for entrepreneurship. It also combats corruption and disables patronage networks.”
The SARB’s true value
But that isn’t the story here. The real headline belongs to the SARB’s proactive attitude. Through Project Khoka it is helping guide South Africa into a high-tech future that benefits everyone. It creates the stability that others can build upon, leading to more innovation and job creation. This has long been the crucial role of the SARB: it maintains the course so that others can flourish on the stability it provides.
No wonder the World Economic Forum recognised South African banks as the second most sound globally. Despite significant body blows in the past number of years, the South African economy has maintained much of its resilience and remains attractive to investors. That is not by accident but instead has everything to do with sound policy and vision from the SARB.
“South Africa has some of the best industry self-regulation bodies,” says Brink. “Bodies like BASA, PASA and numerous sub-committees continue to do excellent work, unabated by external influence. On the capital markets side, the JSE, Strate and the likes are solid institutions that facilitate efficient trade and capital flow.”
But it’s a culture that can only thrive if the SARB remains politically agnostic. In recent months, calls for nationalising the SARB have grown. There is a view that a central bank controlled by the government is the best way to create gains for SA’s people. But both theory and real-world examples don’t agree. The SARB’s track record proves that a non-Public Sector entity can take on those roles to the benefit of all.
The best bank for the job
Recently some have jumped on the SARB’s shortcomings as a reason for ending its independence. Brink concedes that the SARB doesn’t have a spotless record. Other than more recent examples such as African Bank and VBS, it also stumbled on the Tier II banking shutdown and the 1998 mini-crisis. But no institution is perfect:
“It’s impossible to regulate comprehensively to avoid utmost greed, such as at African Bank, and plain corrupt graft as we saw at VBS. There is also no proof that nationalised banks are any more effective at preventing such extreme abuses.
“The SARB is actually very effective. Consider how decisively it acted with African Bank, managing to turn it around in just two years. There are banks in first world countries that still haven’t quite recovered from the 2009 crisis. We really undervalue the effectiveness and stability we get from the SARB.
“By supporting blockchain technologies, the SARB is really saying that they support self-regulation by consensus, based on transparent contracts as a high-tech addition to normal bank regulation. This excites me as the SARB is demonstrating that it is willing and able to move with the times whilst remaining solid in the execution of core responsibilities.
Technology is creating positive change. In the wake of the Tier II crisis, new Challenger banks used technology to fill the vacuum and upset incumbents. Those challengers became Capitec and Discovery and now include Bidvest and Sasfin. They were able to take risks in good faith, knowing that the right policies and support are in place.
Such support doesn’t materialise out of thin air. They require an institution of vision and drive to back them, as the SARB is doing. Blockchain is just one example: the world is changing fast through numerous digital technologies and the countries that can’t adapt will become the paupers of the 21st century. A technology-progressive and visionary SARB holds the keys to South Africa’s future.
This is not possible if the SARB isn’t independent of state politics, Brink concludes: “The capacity of SA to remain self and properly regulated by independent and excellent institutions such as the SARB is an economic imperative of the same importance as the sanctity of life and the protection of all property rights.
“Those uncomfortable about all the tax-funded bailouts of rogue banks should support an independent SARB because it stands for innovation, trust and value. A state-run SARB will result in the opposite, also known as a Venezuelan Tragedy.”