South African policymakers, A new report from the Central Bank and Intergovernmental Fintech Working Group finds that legislatures and regulators need more involvement in the fintech industry before distributed ledger technology is integrated into the country’s financial markets.
A distributed ledger is a digital record of transactions and contracts maintained in a decentralized form in multiple locations. This technology underpins cryptocurrencies like Bitcoin and is being experimented with in many parts of the global financial system.
It’s time to consider how to deal with distributed ledger-based platforms and the use of tokenization in financial markets, along with the legislative reforms of the payment system underway in South Africa. The central bank and the working group said in a statement on Wednesday they were building on cooperation.
The two institutions completed a joint proof-of-concept project exploring the policy and regulatory implications of distributed ledger-based innovations in financial markets.
In an experiment called Project Khokha 2, central banks and working groups issued, liquidated and settled bonds using distributed ledger technology and tokenized currencies to inform policy and regulatory reflection. The working group included South Africa’s top four banks (Absa, FirstRand, Nedbank and Standard Bank) and JSE.
Operating a distributed ledger and technology-based financial system will require new capabilities for all role participants and new platforms will need to integrate with legacy systems, the central bank and working group said. The cost of such a move, borne by all market participants, must be offset against the potential benefits, and new standards, best practices and supporting ecosystems must be in place.
“The transition to a DLT-based system requires careful planning and execution, and may require running a DLT-based system in parallel with an existing system for some time, perhaps indefinitely,” they said. — (c) 2022 Bloomberg LP
Central Banks Call for More Engagement in Blockchain
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