Is cryptocurrency subject to capital controls? In South Africa, the answer is no. For now.
A recent High Court judgment found that Bitcoin and other cryptocurrencies do not constitute capital in terms of the country’s capital control rules and thus are not subject to exchange controls.
It’s another instance of technology superseding legislation. Handing down judgement, the presiding judge agreed with the applicant’s counsel that “a regulatory framework addressing cryptocurrency is long overdue”.
According to Baker McKenzie, the judgment is likely to spur policymakers into action, and we can now expect amendments to the Exchange Control Regulations. The law firm points out that in a similar case relating to intellectual property (which the judgment under discussion drew upon) the regulations were updated about 15 months after judgment.
Of course, a lot can happen in 15 months. After the intellectual property judgment, Baker McKenzie says, there “was an IP export free-for-all, where IP was readily exported outside of South Africa without any fear of triggering any exchange control implications”. There is good reason to anticipate “a similar mass export of currency, through the use of cryptocurrencies such as BTC, stablecoins or others” unless the regulations are rapidly changed.
Two paths for digital payments
The South African case raises broader questions about how we regulate digital currencies.
In the United States, the GENIUS Act, which would create a framework for stablecoins, is closer to becoming law. The legislation could help bring stablecoins into the mainstream which, according to some commentators, could add a healthy degree of competition to legacy banking services.
Already, major banks are tentatively exploring working together on a stablecoin programme, in an effort to avoid getting left behind.
In Europe, by contrast, many policymakers are emphasising the need for an official central bank digital currency – a digital euro – to ensure central bank authority and independence.
When taken to their extremes, both CBDCs and stablecoins could threaten traditional banking, one from the state, the other from the private sector, by assuming core banking functions. Legislators will likely seek a balance between innovation and unnecessary disruption.
Traditionally, money has been issued and controlled by the state, serving as a unit of account, a store of value, and a medium of exchange. Digital assets challenge this model: they’re programmable, don’t respect sovereign borders, and are often decentralised.
As money evolves from a state-issued physical asset to a digital instrument defined by algorithms, governance models, and market demand, we may need to shift our perspectives about how we use money and even what money fundamentally is.
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