South Africa’s Central Bank (SARB) has successfully piloted a Proof-of-Concept (PoC) for an interbank payment system that tokenizes fiat using Quorum, according to an SARB press release published June 5th. Quorum is an Ethereum-based private blockchain.
According to SARB’s report on the pilot, dubbed ‘Project Khokha,’ all of the bank’s goals were successfully achieved, the primary aim being “to build a proof of-concept (PoC) wholesale payment system for interbank settlement using a tokenized South African rand on distributed ledger technology (DLT).”
The project further aimed to investigate the “interconnected” issues of the platform’s scalability, resilience, confidentiality, and finality.
Seven South African banks participated in the trial, with blockchain incubator ConsenSys as technical partner and international audit and accounting firm PricewaterhouseCoopers Inc. (PwC) as a support partner.
SARB centrally coordinates South Africa’s existing Real Time Gross Settlement System (SAMOS), which operates on a 24/7/365 basis to settle all interbank obligations on a real-time basis in central-bank money.
The system piloted in Project Khokha is disintermediated - with each bank responsible for configuring its own node on the network - and would mint tokens on a blockchain rather than printing fiat to settle banks’ asset obligations.
Specifically, the trial tested a version of Quorum that uses an Istanbul Byzantine Fault Tolerance (IBFT) consensus mechanism, testing two encryption methods - Pedersen commitments and range proofs - that SARB claims have never before been used on a Quorum network using IBFT.
According to a ConsenSys representative quoted by TrustNodes, Pedersen commitments and range proofs are methods that hold balances in a random number format so that the balance of each participant is concealed. The central bank in this case would have a decrypting key for the purposes of liquidity monitoring and regulatory oversight.
Moreover, as SARB’s report notes, both methods are fast, and the pilot system therefore managed to successfully process SAMOS’ high-value payments transaction volumes across distributed sites within the required time-window. SARB’s report concluded the system could “have considerable implications,” noting that:
“If one starts from the point where money is tokenized...and then represented on a DLT system, then this system can be developed to enable other uses beyond wholesale settlement. Examples include the exchange of tokenized money for other tokenized assets, like bonds or securities.”
While investigating blockchain’s potential, SARB has recently declared that cryptocurrencies are “cyber-tokens” because they “don’t meet the requirements of money.” In April, the central bank established a self-regulatory organization to oversee developments in the crypto industry aimed at preventing “systemic risk,” although the bank stressed it was cautious not to “throttle growth” in the emerging sphere.