A Digital Leap: How a CBDC Could Transform South Africa’s Economy

South Africa stands at a critical crossroads: its cash-dominated economy faces pressure from the growing volatility of its currency, the rand, rising corruption, and widening financial exclusion. While cash remains king in most countries, South Africa’s unique vulnerabilities – such as extreme income inequality, limited banking access for millions, and a currency frequently rocked by political and global economic instability – make the need for a Central Bank Digital Currency (CBDC) particularly urgent. A CBDC could offer a more stable, secure, and transparent alternative, reducing reliance on cash while addressing the structural inefficiencies exacerbating economic inequality within the country. By accelerating its plans to implement a CBDC, South Africa can stabilize its payment systems, promote financial inclusion, and reduce corruption, paving the way for a more resilient and equitable economy. Equally significant, introducing a digital rand could enhance South Africa's global connectivity by addressing the high costs of cross-border money transfers, which remain significantly higher than in many developed countries. The stakes couldn’t be higher: failing to act risks leaving millions of South Africans even further behind in an increasingly digital global economy.

According to the Financial Sector Conduct Authority (FSCA), at least 6 million South Africans own a crypto asset – around 10% of the total population. This popularization of electronic assets, coupled with relatively strong digital infrastructure across the country, makes a CBDC a compelling alternative to cash. Importantly, the value of CBDCs, unlike that of crypto assets, is not subject to drastic swings in market sentiment. Instead, it is controlled and regulated by the central bank issuing the currency. As a result, a rand-backed CBDC will garner strong confidence, helping to facilitate commerce across the country while removing any middlemen who would otherwise hamper the incentive to transact. The permeation of mobile money solutions into South Africa – which now ranks first across the continent for number of mobile money accounts and mobile subscriptions – has already provided a means for previously unbanked South Africans to send, receive, save, and borrow money. Low barriers of entry afforded by these mobile platforms, which do not require a high level of financial literacy and offer immediate and visible benefits, have been fundamental to the rise in financial inclusion in South Africa. For example, elderly South Africans, who previously had to travel and wait for hours in line to collect their South African Social Security Agency (SASSA) grants, can now receive and transfer funds effortlessly from their homes. This not only provides convenience but also stimulates local economies by increasing the speed and volume of transactions. This rise in digital payments will be accelerated even further by the introduction of a CBDC, which will operate in a similar manner to typical mobile solutions while offering lower transaction costs, faster settlements, and less risk.

Critical to South Africa’s rollout of a CBDC is Africa’s continued investment in digital infrastructure, which topped $32 billion between 2010-2021, according to a recent report published by the World Bank Group. A significant portion of these investments were concentrated in a small group of countries, including South Africa, which ranks in the top five in available submarine cable bandwidth and data center IT power in Africa. However, despite South Africa’s general possession of robust technological infrastructure, there is drastic inequality in access to and understanding of this technology, particularly in rural areas. Any CBDC rollout must include measures to ensure equitable access, such as community outreach, education programs, and possibly offline transaction capabilities to bridge these gaps.

Transitioning to a digital currency could bring sweeping benefits beyond financial inclusion. First, it would increase transaction efficiency. Traditional cash transactions are costly and time-consuming, especially in cross-border contexts where fees are high and processing times are slow. A digital rand could reduce these costs, making it faster and cheaper for South Africans to transact both domestically and internationally. This is especially relevant as South Africa is one of the most expensive G20 countries for cross-border transactions, with remittances costing about 7% more than in developed markets. A CBDC and its promise of fewer intermediaries could streamline these processes, thereby further opening the nation’s economy to the rest of the world.

Introducing a CBDC would also positively impact safety and security, a major concern for the high-crime nation. Physical cash poses risks of petty crime and armed robbery, particularly in underserved communities. A digital rand, held on secure platforms, could mitigate these risks by reducing dependency on physical money. The ability to transact digitally, even for small daily purchases, could improve quality of life, offering security and convenience.

However, adopting a CBDC would come with challenges. Cybersecurity is a primary concern. South Africa has unfortunately become a hub for cybercrime on the African continent, with phishing attempts and digital fraud increasing in recent years. To build trust, the South African Reserve Bank (SARB) would need to establish cybersecurity protocols, ensuring that digital wallets and transactions are resilient against attacks.

Furthermore, privacy concerns must be addressed. Cash has always offered a level of anonymity that digital transactions lack. If South Africans fear that a CBDC will give the government too much insight into their spending habits, adoption could stall. Transparency around data usage, coupled with strict privacy protections, will be essential to build public confidence. A gradual, phased approach, allowing citizens to test and trust the system, could be crucial in managing these fears – otherwise, the digital rand could easily face the same fate as the eNaira in Nigeria, which has faltered in its rollout.

Then there’s the issue of impact on traditional banks. If consumers rapidly transfer funds from traditional bank deposits to digital wallets, banks could face liquidity issues, restricting their ability to lend to businesses and individuals. Collaborating with commercial banks from the outset to integrate a CBDC without disrupting existing financial ecosystems would be essential.

Despite these challenges, SARB’s Digital Payments Roadmap and Project Stimela, which examines CBDC viability, indicate South Africa’s openness to embracing digital currency. The shift toward a digital currency is more than a trend; it represents a new era for South Africa’s economy. For a country burdened with socio-economic disparities, the opportunities for greater financial inclusion, security, and efficiency make a strong case for prioritizing a digital currency. If South Africa wishes to remain competitive and harness the benefits of a global digital economy, now is the time to champion the digital rand.

Bylines:

Miles Johnson (CC ’28) is a writer for the Columbia Emerging Markets Review studying math and classics. He is passionate about exploring blockchain solutions for emerging markets and examining the intersection of sports and finance.

Jonathan Pollak (CC ’27) is a managing editor at CEMR studying financial economics and political science. His interests include institutional stability and economic development in Latin America.