Record-setting prices for cryptocurrencies, like Bitcoin, Ethereum and Litecoin, have caught the attention of the South African Central Bank. Waves were made by the South African Reserve Bank, or SARB, with its recent indecision towards cryptocurrencies and the blockchain. Earlier in the year, it stated that it was experimenting with issuing its own digital currency and had partnered with blockchain firms to get the ball rolling. But fast forward a few months, and the SARB is starting to reign in the optimists. It’s recently stated that cyber currencies are simply ‘too risky’, with the prospect of a Central Bank issued digital currency shelved for the foreseeable future.
This focus on cyptocurrency and blockchain from the African Central Bank has raised an important question: Where do new technologies such as cryptocurrency fit in with monetary policy? For centuries, Central Banks have controlled the currencies that they issue. From the Bank of England and sterling to the Central Bank of Kenya and the Kenyan shilling. Now though, these Central-bank issued currencies live alongside a privately-issued cousin – the most famous of the bunch being Bitcoin.
Where do new technologies
such as cryptocurrency fit in
with monetary policy?
It’s a difficult question. South Africa has been one of the first to try and answer it (or to discuss acting at least) due to the prominence of digital currency within its population. But they aren’t entirely alone. Around the globe, countries are taking their own approach, with China banning Initial Coin Offerings, or ICOs, and the Dutch creating an internal coin for use within its Central Bank, for experimentation purposes only.
Ultimately – as illustrated by South Africa’s hesitancy – only time will tell in regard to how digital currencies affect global Central Banks and in turn, their economies. However, with Central Banks already making noise about them, treasurers and finance teams exposed to say the South African Rand, cannot stand by idle.
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What CFOs and accountants need are platforms that are flexible enough to allow for the introduction of rates regarding private digital currencies. If South Africa did decide to launch its own digital currency, companies trading with South African exporters might find themselves having to deal in the currency too – adding another layer of risk. Not only that, but Central Banks around the world would also be catalyzed to do the same in a shorter time frame than anticipated. Therefore, businesses need technology that can handle this potential new wave of information.
Furthermore, if currency did go digital, gaining accurate data for currency pairs becomes even more important for forecasting costs, understanding cash flow, and budgeting accordingly. For a treasurer, an aspirin hasn’t been invented powerful enough to cure the potential headache of digital currency. Like an accountant, data is critical to a treasurer looking to hedge against certain currencies or events and make the best investment decision. Given the volatile nature of Bitcoin, which has fallen over 20 per cent in one week, this becomes an even more difficult task – and only with the best data feeds and analytical tools can the treasurers of the future succeed.
If Central Banks are takeing note,
then treasurers and finance
teams have to take note too.
Ultimately, the great digital currency experiment may never materialize if the flag bearers – Bitcoin, Ethereum, Ripple and Litecoin fail to survive. Although, as South Africa has demonstrated, it’s something on the radar of Central Banks not only in Africa but across the globe. If it’s an issue big enough to force Central Banks to take note, then treasurers and finance teams have to take note too. It might seem unlikely, but if SARB did introduce its own digital currency – every company dealing with the region would have to react accordingly, or risk being left behind.