South Africa must develop a clear policy to facilitate the movement of money in and out of the country through crypto assets, thereby attracting more capital into the economy, much like the US did through the Genius Act.
This is the view of Harry Scherzer, CEO and co-founder of Future Forex, who told Business Times in a recent interview that while South Africa had a sophisticated financial sector and finance infrastructure, recognition of cryptocurrencies as a store of value would bring an added benefit.
“You have a situation where [the US] are more open to crypto… and understand the need to regulate it very strongly. You need to regulate it sufficiently. But they’ve done all the high-level thinking around it. Why reinvent the wheel?”
Scherzer said South Africans can’t send money out of the country using crypto legally because there’s no way to report it. Europe and the US were ahead in using crypto to move money internationally. “As an American, if I want to take my money out and the Reserve Bank decides, for whatever reason, to say they’re not comfortable with a transaction, you’re in trouble.
“Because of that, we have a situation where we’re probably getting less investment into the country because of that fear, which might be incorrect. But there’s still that fear, and that results in people going to Brazil, to China, to Australia rather than South Africa … it probably is slowing down the movement of money into South Africa.”
It’s the difference between success and failure. That’s kind of where we come in. If you’ve got a potential contract for a working contract or you’ve got to buy inventory for a contract, and you’ve got no cash, you’re going to lose that contract.
— Garth Rossiter, Lula co-founder
The US government has passed the Genius Act, which legitimises and regulates stablecoins. A stablecoin is a cryptocurrency that is backed by a major currency, such as the dollar, allowing easy movement of money across borders.
“If government gives us a way to report on it, it’s quicker, it’s cheaper, it’s better than the SWIFT system, which is something that was built in the 1970s. The problem is that the government is a little scared about its safety, which is completely fair… but in America, we’re seeing that they’re making regulations such that they can mitigate the risk of scammers.”
SWIFT facilitates secure international financial transactions.
Better exchange controls and an easier way of sending money would bring more business into South Africa, he said. “It’s hard to tell how much better our GDP would do if we had better international payments. It’s hard to know how many businesses have shut down because it was too hard to work with the banks, because the banks were too expensive.”
While X-ZAR is equivalent to the rand as a crypto asset, South Africa has to regulate already existing cryptocurrencies and integrate them with outbound and inbound payment processes. “America is leaning into this idea that crypto can be used to basically replace the SWIFT system quicker, easier, and cheaper. South Africa should effectively do the same.”
Last year, the National Treasury gazetted the Conduct of Financial Institutions Bill, which seeks to establish a framework for new financial products and services, along with a code of conduct for people trading in newer asset classes such as crypto assets. It requires traders to clearly explain the terms, fees, and risks associated with the asset classes they trade to their clients.
Meanwhile, Garth Rossiter, co-founder of Lula — a funding platform for SMEs — said enabling cash flow in the financial ecosystem was important for SMEs. These businesses need cash flow and capital, but often tend not to have collateral to put up in exchange for a loan or an advance.
“With SMEs, cash flow underpins pretty much everything we do or that an SME does.
“It’s the difference between success and failure. That’s kind of where we come in. If you’ve got a potential contract for a working contract or you’ve got to buy inventory for a contract, and you’ve got no cash, you’re going to lose that contract,” he said.
Rossiter said banks tended to take a long time — sometimes up to two months — to make decisions on SME loan applications: “While traditional banks serve a great purpose, they often lack an understanding of the needs of SME.”
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