South Africa's Growing Stablecoin Adoption Undermines National Monetary Authority

South Africa’s central bank has issued a warning about the increasing dangers associated with crypto assets and stablecoins, cautioning that their unchecked growth could compromise the nation’s foreign exchange regulations and overall financial stability. In its most recent Financial Stability Review, the South African Reserve Bank (SARB) pointed to the swift uptake of stablecoins—digital assets tied to fiat currencies such as the U.S. dollar—as a significant risk, especially since they operate outside current regulatory boundaries. The bank observed that stablecoin trading activity

in 2022 to almost 80 billion rand by October 2024, signaling a fundamental change in user engagement.

The SARB linked this trend to the global and digital characteristics of crypto assets, which enable them to evade South Africa’s Exchange Control Regulations. These controls, intended to oversee capital movement in and out of the country, presently do not cover digital currencies.

, our ability to supervise is limited," stated Herco Steyn, the central bank’s chief macroprudential expert. This alert comes as the nation’s top three crypto platforms—Luno, VALR, and Ovex—have reported , with total client holdings surpassing $1.5 billion as of 2024.

The central bank also noted that stablecoins, in contrast to highly volatile cryptocurrencies like

, provide a safer option for those looking to protect themselves from currency swings. As a result, there has been a "marked shift" toward using USD-backed stablecoins instead of Bitcoin and other digital currencies as trading pairs on South African exchanges . Nevertheless, the absence of thorough regulation for stablecoins—compared to the partial oversight of cryptocurrencies—creates loopholes that might let capital leave the country unnoticed, weakening conventional monetary policy tools .

International regulators have voiced similar worries. The Financial Stability Board, which oversees G20 financial systems, stated in October that South Africa lacks a regulatory structure for global stablecoins and only has limited rules for crypto assets. This regulatory gap could introduce "systemic risks" as stablecoins become more prevalent in developing economies

. The SARB’s concerns are in line with warnings from global organizations such as the Bank for International Settlements, which has highlighted that stablecoins could intensify capital outflows in countries with fragile currencies.

Efforts to address these regulatory shortcomings are ongoing. The central bank and National Treasury are collaborating on new rules for cross-border crypto transactions and plan to revise exchange control laws to include digital assets. Still, Steyn admitted that the anticipated progress in 2025 might lag behind the rapid evolution of the market.

, he warned.

The rapid rise in stablecoin usage mirrors larger shifts in digital finance. Worldwide, the stablecoin sector has expanded to $314 billion, with Tether’s

and Circle’s leading the market. In South Africa, this expansion has been driven by economic challenges such as currency instability and inflation, which have increased the appeal of alternatives to traditional banks. However, the central bank cautioned that heavy dependence on decentralized financial solutions could undermine monetary authority, especially in countries where capital controls are vital for managing foreign exchange reserves .

As lawmakers work to address these issues, the SARB’s position highlights a worldwide challenge: finding the right balance between fostering innovation and maintaining stability. While crypto and stablecoins can enhance financial access and efficiency, their unchecked growth could destabilize economies that are already susceptible to capital flight. South Africa’s strategy—combining regulatory advancements with prudent supervision—could become a blueprint for other developing nations transitioning to digital finance.