The first phase of Project Khokha was designed to trial interbank wholesale settlement using distributed ledger technology (DLT) — a blockchain is a type of distributed ledger. The second phase will see the Reserve Bank create and issue a wholesale central banking digital currency (CBDC), also known as a wCDBC. Using a distributed ledger, which is a digital record of transactions and contracts held in a decentralized form across various locations, Project Khokha 2, or PK2, will explore the use of tokenized money, blockchains and digital currency in South Africa. The project is being driven by the Reserve Bank with active participation by the big banks, including Absa, FirstRand, Nedbank and Standard Bank, as well as the JSE.
One of the main objectives of PK2 is to develop a wCBDC and a wholesale digital settlement token (wToken). The wCBDC will serve as an alternative form of central bank money, like money in reserve and settlement accounts with the central bank. While working on the new phase for Project Khokha, the technical teams had the freedom to reimagine the current debentures market and design for DLTs. This resulted in two core DLT platforms, the wholesale CBDC zone and the Khokha hub, which served as a decentralized, DLT-based token-trading platform. The project also developed a second form of money, which was issued by commercial banks as a stablecoin and used for purchasing central bank debentures in the secondary market. A challenge that remains is that existing legislation does not cater for new fintech technologies in the formulation of the market structure. Regulators, including the Reserve Bank, are moving with caution in considering developments before implementing regulatory changes, while being fully appreciative that regulated entities are waiting for regulatory certainty before committing to enter DLT-based token markets.