Challenge by the South African Reserve Bank
The South African Reserve Bank (SARB) is challenging a recent High Court verdict that scrutinized its use of an antiquated exchange control regulation to oversee cryptocurrency transactions. This appeal, lodged on June 2, questions the court’s previous support for Standard Bank, which had expressed grievances over SARB’s actions in confiscating bitcoins from one of its clients.
Core Issue and Bitcoin Transfer
The crux of the issue revolves around Leo Cash and Carry, the client whose bitcoin transfer of 4,400 coins to the Seychelles-based exchange Huobi has caught the attention of SARB. The central bank argues that this transaction was part of an attempt to illegally transfer funds, foreign currency, or capital from South Africa.
Moreover, SARB has taken exception to the court’s finding that cryptocurrency should not be classified as either money or foreign currency in the context of exchange control laws.
High Court Ruling
In a ruling by Judge Mandlenkosi Motha at the Pretoria High Court, the judge emphasized that the existing Exchange Control Regulations, which date back to 1961, may not be suitable for governing cryptocurrencies, a relatively new digital asset class that has emerged only in the past decade and a half.
SARB’s Position
SARB insists that Regulation 22C of the exchange control law empowers the bank to prevent transactions it views as infringing on these regulations, maintaining that the court’s decision misinterpreted the law. The central bank believes that had the court accurately applied the relevant legal standards, it would have dismissed Standard Bank’s application.
Criticism and Commendation
In light of SARB’s decision to seek an appeal, Harry Scherzer, the CEO of Future Forex, criticized the central bank for its handling of exchange controls. He pointed out that allowing individuals to circumvent these rules makes the regulations ineffective, stating,
“The Reserve Bank made a mistake as it effectively permits people to bypass exchange controls, facilitating the flow of cryptocurrency abroad without restrictions.”
Despite his criticisms, Scherzer commended SARB for its prompt appeal, which he sees as a necessary step to restore order to South Africa’s financial regulatory landscape regarding cryptocurrencies.
