Last week, local South African tech writer Jan Vermeulen wrote an article on MyBroadband titled “Moving Bitcoin overseas from your wallet in South Africa a crime — Reserve Bank”. This naturally sparked a huge amount of controversy in the local Cryptocurrency community... A follow-up article by Mr Vermeulen (“Bitcoin crackdown in South Africa — what you should know”) provides a lot more clarity, so read the latter if you only read one.
It is true that fairly recently the Reserve Bank seems to have taken a position on “Crypto Assets” that classifies Crypto tokens as either “Capital” or the “Right to Capital”, making it subject to our Exchange Control Regulations — specifically section 10(1)c which states:
10. Restriction on export of capital
(1) No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose — (c) enter into any transaction whereby capital or any right to capital is directly or indirectly exported from the Republic.
This stance is officially stated in at least three places:
- The Reserve Bank’s (SARB) Financial Surveillance FAQ
- The Intergovernmental Fintech Working Group (IFWG)’s Regulatory Guidance Unit FAQ
- The IFWG’s “Crypto Assets Regulatory Working Group” FAQ
This is a fairly recent “announcement” and many people are upset about the Reserve Bank making up seemingly hostile and uninformed rules regarding something that has no notion of borders and is practically impossible for the regulators to control in terms of owning and transferring. Something that arguably does not even exist in any one location...
Not the worst case scenario
I would like to explain why this development is NOT the worst-case scenario and in fact is not entirely unexpected — I am more surprised it has taken the Reserve Bank this long to clarify its position.
Turns out we are all criminals already
First of all, we are dealing here with existing (very old) legislation that is fairly unique to South Africa. No “new rules” have been made. Not many countries deal with the type of restrictive exchange controls we have, in fact this specific clause was promulgated in 1961.
Things that happened in South Africa in 1961:
- Became a Republic
- Introduction of the Rand (ZAR)
- Founding of Umkhonto we Sizwe
- Criminalised sending Bitcoin to your buddy in Australia
This rule predates the moon landing and far predates the Internet. The antiquity of it becomes apparent when you read the clause just preceding section 10(1)c, which is of course section 10(1)b saying:
No person shall, except with permission granted by the Treasury and in accordance with such conditions as the Treasury may impose — take out of the Republic goods, including personal apparel, household effects, and jewellery which have a value in excess of 600 Rand (approx $40) or of such greater amount as the Treasury may determine;
In other words, if you have flown internationally with a nice pair of shoes, you are a criminal by the same set of rules that criminalises sending Bitcoin abroad. And no, this rule does not refer to exporting of goods, it literally says you are not allowed to leave the country with clothing worth more than R600 on you. Turns out we are all criminals already.
And by the way, this exact rule is the reason many South African startup founders incorporate in Delaware instead of locally, because it is extremely difficult to attract foreign investment if the investors know they will not be able to get the return on their investment (or share of the IP) out of the country again. It essentially turns our country into an economic Black Hole.
The worst case scenario would be if SARB decided Cryptocurrencies are more like Forex, meaning we would be limited in terms of the amount we could purchase on local exchanges.
Secondly, there is an alternative stance they could have taken that is far worse. Given that we are dealing with an existing ancient law, SARB had to decide whether the local purchase of Cryptocurrencies need to be reported against your Single Discretionary Allowance (SDA) or not. For international readers — the South African SDA is an amount of R1m ($69k) that a South African may send abroad annually without additional authorisation from the Reserve Bank. The worst case scenario would be if SARB decided Cryptocurrencies are more like Forex, meaning we would be limited in terms of the amount we could purchase on local exchanges. This would be a terrible outcome for local traders without special clearance to trade Forex beyond their allocated SDA. At least by viewing Cryptocurrencies purchased on Luno or VALR as local assets, there are no limitations or restrictions on the amount you may purchase.
Finally, the Reserve Bank has established a scenario that is not in its own best interests to maintain. As per its own rules, you will need to report any Cryptocurrency transfers to foreign- or decentralised exchanges against your SDA via an “authorised dealer” (typically a bank). Since there is no framework for local exchanges to act as authorised dealers, it is impossible for an individual to properly report their international Bitcoin transfers legally.
However, as we know, the true power and intrinsic value of Cryptocurrencies are that they are a means of transferring value from one person to another (P2P), without intermediaries like banks or government that can interfere in the process. And by the way — this is why I get so upset with otherwise intelligent people, for example someone like Stephen Diehl, who rant endlessly about how Bitcoin has “no good usecases”. As a person living in a strong socialist state like Germany, it is essentially impossible for him and people like him to understand the inherent value that non-intermediated currencies like Bitcoin hold for people like us who live under restrictive (and frankly, ridiculous) economic regimes. Just because a rule is the law does not make it right, ethical or moral — Apartheid used to be the law here, remember…
Anyway, the Reserve Bank is now in a position where it must either continue supporting a 60 year old, unenforcable rule, or focus on updating legislation to align with 2021 realities. And in fact, that is the trajectory they seem to have taken recently if you read articles like “the relaxation on restriction of loop structures” and statements as below on their own site:
I am hopeful that we can highlight the obvious irrationality of a pre-internet era law of two generations ago by simply pointing out how criminalising certain Bitcoin transfers is clearly untenable. I will be working with the South African CryptoAssets Association to exclude Cryptocurrency transfers from the current impossible reporting requirements and hopefully transform a large number of criminals back into law-abiding citizens. Just make sure you pack less than R600 worth of clothes next time you get on an international flight…