South Africa Pension Funds To Exclude Non-CBDC Crypto Assets

Table of Contents

• South Africa Restricts Non-CBDC Crypto 
• Regulatory Concerns 
• Defining A Digital Asset 
• Is Crypto A Good Asset Class 
• Project Dunbar 

The South African government has announced that it is testing Central Bank Digital Currencies (CBDCs) to facilitate cross-border payments. The decision is seen to give a boost to financial institutions across the world to incorporate CBDCs and begin using the technology. 

South Africa Restricts Non-CBDC Crypto 

The South African government, in an effort to push its CBDCs, has introduced legislation that restricts non-CBDC crypto from being invested in pension funds. The new regulations are in sharp contrast to the older regulations that allowed portfolio managers to invest around 2.5% of funds into the category of “other assets,” which also included crypto assets. The new rules, however, exclude cryptocurrencies, citing a lack of protection.

The Fairfax County Police Officers Retirement System in the USA allows crypto assets to constitute a portion of the members’ money. Initially, the fund allowed 0.5% allocation in a fund investing in blockchain-related companies. Today, that figure stands at 7%. 

Regulatory Concerns 

South African regulators have repeatedly raised concerns regarding the volatility and speculative nature of cryptocurrencies. They have also flagged the lack of protection for investors. However, the government and regulators are exploring the use cases of distributed ledger technology. The regulators have cited Regulation 28 as it protects investors from investing too much in a single asset class. 

Defining A Digital Asset 

The South African Government has described digital assets as a digital representation of value that does not originate from a central bank. However, they recognize the ability for the asset to be traded, transferred, and stored electronically by legal citizens through the use of cryptography and distributed ledger technology. 

Is Crypto A Good Asset Class 

According to Simeon Ellis from XPS Pensions Group, four criteria can be used to evaluate if cryptocurrencies such as Bitcoin are a good investment opportunity and should be utilized in pension funds. The criteria are as follows     

• Is bitcoin a store of value?
• Is it a source of interest?
• Is it an expected source of capital growth?
• Is bitcoin a risk hedge

Project Dunbar 

Earlier this month, the Basel-based Bank for International Settlements (BIS) announced that it is heading a project in collaboration with the central banks of Australia, South Africa, Singapore, and Malaysia to test the use of Central Bank Digital Currencies (CBDCs) for international payments. 

The initiative, also known as Project Dunbar, will focus on developing platforms for the use of CBDCs for cross-border transactions. This would enable financial institutions to transact directly with each other using the central bank digital currencies issued by the central banks of each country, thereby eliminating the need for intermediaries, reducing transaction costs and the time taken to complete transactions. 

“After years of mostly domestic research and exploration, we are very pleased to see that these common insights about the need to explore cross-border CBDC payments and interoperability are coming together internationally.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.