As part of a recent lengthy position paper on crypto, a South African regulatory body called the Intergovernmental Fintech Working Group, or IFWG, mentioned crypto as a possible but unlikely risk to the country’s monetary system at present.
In its April 16 paper, under a section titled “the risks of crypto assets,” the IFWG said:
“The risk of a parallel, fragmented, non-sovereign monetary system: The risk with potentially the widest-ranging implications is the threat to the existing financial system, in which central banks ensure an efficient monetary system through the execution of monetary policy and influence the supply of money or fiat currencies.”
What is the IFWG?
In conjunction with several of the country’s other government bodies, the South African Reserve Bank, or SARB, expressed concerns around cryptocurrencies and their lack of regulation in 2014, via a public briefing, the 2020 position paper detailed.
In 2016, South Africa saw the formation of the IFWG, made up of the governing bodies that produced the 2014 statement, with two additional entities jumping on board in 2019.
“The overall objective of the IFWG is to foster fintech innovation by supporting the creation of an enabling regulatory environment and reviewing both the risks and the benefits of emerging innovations, thus adopting a balanced and responsible approach to such innovation,” the paper detailed.
Is crypto a monetary system risk?
High crypto demand would disrupt South Africa’s monetary system, according to the IFWG. “A significant increase in the demand for crypto assets would lead to the creation of a parallel and ultimately fragmented monetary system,” the paper acknowledged under its crypto asset risk section.
Noting cryptocurrencies could dilute the South African central bank’s impact on the economy, the paper explained digital asset prevalence could also create an arena in which fiat currency battles cryptocurrency for dominance.
“In essence, the monetary system would be executed by private entities with individual objectives,” the paper said, adding:
“Given the current use of crypto assets observed, crypto assets are not seen as posing a systemic risk as yet, and this risk is not probable of materializing in the near future.”
At 58 pages in length, the IFWG paper covered a plethora of other touchpoints and topics, including other risks and use cases surrounding digital assets, as well as regulatory angles.
Over in China, recent headlines show the country’s government appears on the brink of releasing its own national digital currency, as testing efforts surfaced.