South African Judge Criticizes Central Bank for Outdated Crypto Regulations

In a landmark court decision, a South African High Court judge has criticized the country’s central bank for relying on outdated cryptocurrency regulations. Judge Mandlenkosi Motha highlighted that the South African Reserve Bank (SARB) is still using exchange control guidelines from the apartheid era to manage digital assets like Bitcoin. This criticism came during a dispute between Standard Bank and a company that failed to repay a debt of R41 million.

The case began when Standard Bank attempted to liquidate the company for non-payment of debts. However, the company’s assets were seized by SARB’s Financial Surveillance Department (FinSurv) before the liquidation process could commence. FinSurv claimed that the company had purchased significant amounts of Bitcoin and transferred them to overseas cryptocurrency exchanges, violating South Africa’s exchange control laws.

Judge Motha emphasized that the existing laws are insufficient for regulating cryptocurrencies. He noted that current regulations treat digital assets as if they were traditional money, which is not accurate. Cryptocurrencies, such as Bitcoin, are stored on global electronic ledgers, making it difficult to track them to a specific location. This raises legal questions about how to handle cryptocurrencies when crossing borders and whether they can be used like cash for deposits.

The judge also referred to an academic paper by SARB, which described cryptocurrencies as digital codes not tied to any specific country, unlike national currencies. He stressed the need to reinterpret the definition of “currency” in current laws to determine if a company complies with exchange control regulations. The judge called for legal reforms to address the unique characteristics of digital assets.

Digital asset platform Luno, which originated in South Africa, has also expressed concerns about the outdated regulations. Luno has repeatedly advocated for clear and up-to-date regulations, arguing that the lack of regulatory certainty could deter investors from the sector. The high value of Bitcoin, exceeding R2 million, indicates significant interest in these assets. As global firms and pension funds increasingly invest in cryptocurrencies, South Africa risks falling behind if it does not update its legal framework.

One of the key issues highlighted is the lack of clarity in South African law regarding whether digital assets are considered onshore or offshore. This ambiguity makes it difficult for investing organizations to manage these assets, leading to hesitation among potential investors. The judge’s ruling underscores the urgent need for South Africa to modernize its cryptocurrency regulations to protect investors, prevent exploitation, and foster economic growth through digital innovations.