The urge to improve the lives of people is the major factor driving the South African Reserve Bank (SARB) towards the blockchain technology says Lorien Gamaroff, CEO of Bankymoon, who has been working with the apex bank on blockchain and cryptocurrencies using his consulting business as a case study.

"The SARB has many intelligent and forward thinking people that would like to improve the lives of people and if this technology can do this, they are willing and ready to create an environment where these opportunities can be exploited," Gamaroff says. "The South African Reserve Bank has shown interest in the blockchain technology for some time with a plan to issue its national digital currency."

The SARB is supportive of South African banks testing blockchain applications for issuing syndicated loans.

In an interview with BizNews at Davos 2017, SARB Governor Lesetja Kganyago said like other central banks, the SARB is now creating the opportunity for the FinTech sector to experiment with their innovations through sandboxes to highlight key constraints in the system.

A recent report by the Bank for International Settlements shows that the SARB is the only African institution affiliated to the Committee on Payments and Market Infrastructures working group.

The Group, comprising of about thirty major banks, drafted a document to provide an analytical framework for central banks and other authorities to scrutinise the feasibility of using blockchain technology for payment, clearing and settlement.

More impact

Gamaroff agrees that while there has been much talk about blockchain technology disintermediating the existing financial system and they are actively researching it to confirm the veracity of the claims, he sees Bitcoin creating far more impact on the African economy than blockchain technology in years to come.

"The hope is that distributed ledgers (blockchain) will increase efficiencies and reduce costs within existing organisations and business models. Much of this hope is unfounded. People and teams that are developing blockchain proofs of concept are starting to realise that business cases for the technology are elusive. Bitcoin is underrated as a technology that will bring financial inclusion to a vast number of people on the planet. It is, in fact, the true revolution that will bring disruption to a vast majority of businesses that exist today."

He added that the only use case he foresees for blockchain by central banks in Africa is as a digital currency. This is because these institutions are focused on monetary policy and the regulation thereof - it is not the responsibility of banks, SARB for example, to regulate technology unless business models utilise it as a means to an end. Also, most of the other use cases for blockchain that are being touted may or may not ever be realised.

However, Bitcoin is very likely to be embraced by the private sector in the years to come because it is a global currency that requires no banking system to operate, enables cheap cross-border payments and acts as a store of value and a hedge against uncertainty, Gamaroff explains, adding:

"It is a reliable payment method for merchants because it eliminates fraud. I foresee more people and businesses using it as an alternate payment system. It will probably take longer for the public sector to embrace it, since regulation is unclear and these organisations are not typically early adopters. Blockchain technology, however, will have a much longer period before practical business cases are developed. There are no blockchain solutions in production. There are solutions being developed that are being touted as 'blockchain inspired', but these amount to nothing more than existing technology platforms being described in similar language."