South Africa aims to prohibit firms from relocating stablecoins overseas, while allowing individuals to retain their limits.

      **TL;DR** South Africa's Reserve Bank and National Treasury have proposed prohibiting companies from conducting cross-border stablecoin transactions, while maintaining individual allowances of up to R2 million. Exchanges like VALR and Luno have expressed concerns, with Luno hinting at a potential legal challenge if the Treasury bypasses parliament. This proposal marks a significant attempt by South Africa to reintegrate digital tokens into traditional exchange control systems.

      The new draft rules would prevent South African companies from making any cross-border crypto transfers, blocking incoming payments from private wallets, and categorizing outgoing transfers as offshore capital moves subject to exchange control limits.

      **Individual vs. Corporate Regulations**

      Individuals remain largely unaffected, with the ability to transfer up to R2 million (approximately $120,000) abroad each year without prior approval, and up to R10 million with tax authority consent. In contrast, companies would have no such allowances, creating a scenario where a salaried South African can move stablecoins across borders more freely than an exporter settling payments with international suppliers.

      **Responses from the Industry**

      Farzam Ehsani, CEO of VALR, cautioned that strictly prohibiting corporate transactions on regulated exchanges may push these activities underground or overseas. This is a common criticism of prohibitive measures, especially in a market with established peer-to-peer networks. Luno further contended that changes to decades-old regulations by the executive branch could undermine democratic processes, indicating they might pursue legal action if the Treasury attempts to circumvent parliament.

      Marius Rietz, Luno’s GM for Africa and Europe, commented that not allowing corporate cross-border stablecoin transactions places South African firms at a disadvantage compared to global players.

      **Differing Opinions**

      Absa, one of South Africa’s major banks, views the proposed rules as a necessary clarification. Rob Downes, head of digital assets in Absa's corporate banking division, acknowledged that the ban might limit immediate opportunities but suggested that it could lead to eventual corporate transfer possibilities.

      **Central Bank's Rationale**

      Reserve Bank Governor Lesetja Kganyago reasoned that excluding crypto from regulation would lead to market distortions. He emphasized that South Africa has a system for capital flow measures and argued for uniform rules across all asset classes.

      **Contradictory Moves**

      In April, South Africa abolished a long-standing system designed to prevent capital flight from the apartheid era, signaling a trend towards liberalization. The recent proposal, however, seems to draw a new digital asset class back into the regulatory fold, creating a narrative of inconsistency in policy direction.

      **Corporate Use of Stablecoins**

      The corporate demand for stablecoins is pragmatic rather than speculative, with businesses in Africa utilizing them for immediate payments to foreign vendors, circumventing limited banking access to hard currency and the high cost of transfers. Stables and Access Bank South Africa are investigating cross-border payment solutions for businesses based on this need.

      **Continued Investment**

      The Reserve Bank's attempts are not unprecedented; they previously sought to limit cryptocurrency use for circumventing currency controls in 2019. Despite regulatory hurdles, firms are still investing in the continent, with companies like Velocity raising substantial funds to obtain licenses in regions where stablecoin transactions make sense due to slow conventional banking systems.

      **A Different Approach in Nigeria**

      Nigeria has opted for regulation over restriction, requiring digital asset traders to register for tax identification numbers and pay income tax on crypto profits. This approach contrasts with South Africa's, as Nigeria received around $59 billion in crypto inflows between July 2023 and June 2024, ranking second globally in crypto adoption.

      Public commentary on South Africa's draft regulations will conclude at the end of September. Pankaj Bengani from the stablecoin network MELD highlighted that European regulations have already restricted numerous top stablecoins, cautioning about the liquidity impacts of stringent compliance regimes.