Last week South Africa announced Project Khokha 2 to explore the use of both a wholesale central bank digital currency (CBDC) and a wholesale settlement token, in other words, for interbank use.
Whereas mainstream stablecoins persist over time and can be held as digital money, settlement tokens are only intended to be held for the short term. So bank cash is tokenized, a payment is made and the token is converted back to cash in another bank account. Tokenization enables instant on-chain settlement or delivery versus payment.
The trial will explore using both forms of tokenized money to settle debenture or bond transactions, which will be issued, settled and cleared on a permissioned blockchain. The minimum viable product (MVP) will be used to inform policy decisions and regulation. One of those is interoperability.
All the relevant government departments are involved, as the announcement came from the Intergovernmental Fintech Working Group (IFWG) Innovation Hub. This body represents the South African Reserve Bank (SARB), the treasury, the tax authority, regulators and other departments.
When Ledger Insights asked about the technologies, IFWG clarified that the CBDC would use R3’s Corda enterprise blockchain, and the settlement token and debenture will use a variant of Cosmos blockchain interoperability solution.
However, the IFWG was keen to emphasize that its position is technology agnostic and the current selections should not be viewed as endorsements.
“We also believe that assessing how interoperability could be achieved between various DLT solutions will deepen understanding of the mechanics of tokenised networks,” said an IFWG spokesperson via email. “Although various DLT technologies have different nuances and offerings, our interest and analysis is more on the impact that they may have on business model innovation and the related financial services delivered.”
Three consultants are involved. Accenture will be responsible for tokenizing the wholesale CBDC on Corda. Block Markets Africa (BMA) will help with distributed ledger technology (DLT), tokenizing the bonds and the wholesale payment token using its custom Cosmos-based solution. And Deloitte will document the insights.
Other participants in the trials will include commercial banks Absa, FirstRand, Investec, Nedbank, and Standard Bank, the Johannesburg Stock Exchange (JSE), and Strate, South Africa’s central securities depository.
Back in 2018, the central bank ran its initial experiments, also focused on a wholesale CBDC. In the first iteration of Khokha, a trial was run on the enterprise blockchain Quorum, an Ethereum variant with ConsenSys as the consultants. Results found that the solution could process a whole day’s worth of stock exchange transactions within two hours.
What’s particularly of note is the current interest in looking at both a CBDC and an interbank settlement token. Following Singapore’s Project Ubin CBDC experiments, JP Morgan launched a project to commercialize a multicurrency interbank settlement solution with its JPM Coin in conjunction with DBS Bank and government investment firm Temasek.
