Johannesburg Client Center IBM South Africa 90 Grayston

Johannesburg Client Center IBM South Africa 90 Grayston Dr, Sandton 18 th July 2019 17: 30 – 20: 00 Confidential Tanya Knowles Chairperson SAFBC Gerhard Dinhof Blockchain Lead IBM

Hyperledger Meet Up Future of Cash Tanya Knowles SAFBC Chair July 2019 www. safbc. co. za Confidential

What is SAFBC? The purpose of the SAFBC is to assimilate and demonstrate the transformative potential of blockchain technology for the South African financial industry. The consortium aims to educate and to bring the benefits of blockchain technology to the industry for the benefit of the entire country. Confidential

Our Pillars Collaborate • Through partnerships with members and dedicated industry players, the SAFBC focuses on collaborative blockchain solutions that allow members and organisations to make use of the technologies. • Support members to drive and motivate blockchain initiatives within their organisations to create business value. Educate • SAFBC provides a learning platform to members and organisations to share and enhance their skills and knowledge on use of blockchain technology. Advocate • To provide an advocacy and a united voice to regulators and local and international bodies in the SAFBC to act in the best interest of its members Confidential

SAFBC Membership SAFBC membership is comprised of banks, financial markets infrastructure players and regulators as well as other institutions involved in the financial services industry. Blockchain require a fundamental shift in paradigm, requiring collaboration to deploy such technology across a wide range of ecosystem participants. Confidential

SAFBC Membership Types Membership types Financial services organisations Professional services firms operating within financial services Regulatory bodies* Consultants* Vendors / fintechs* * Regulatory bodies may elect to partake in an observer capacity **The SAFBC welcomes consultants, vendors / fintechs as observers and contributors to the consortium – the purpose of which should not be to solicit business / sell their service offering. Confidential

Member Organisations ABSA Adhara Allan Gray ASISA Baker Mc. Kenzie Bankserv. Africa Ltd Blockstarters Bowman Gilfillan Inc. Caleo Capital Pty Ltd Capitec Bank Computershare Consensys Coronation Fund Managers Curo Fund Services Deloitte Fin. Switch FSCA FNB Grindrod Bank Hello Paisa Hogan Lovells IBM Confidential • • • • • • Investec Bank Limited JSE Lexis. Nexis South Africa Linum Labs Maitland MMI Holdings (Momentum) Nedbank Ltd NLA Advisory (Pty) Ltd Norton Rose Fulbright South Africa Inc Old Mutual Insure Old Mutual Investment Group Old Mutual Limited One Connect Technologies Oracle Prudential PWC Rand Merchant Bank (RMB) Refinitiv SA Home Loans (Pty) Limited SARB SARS • • • SBV Silica Sov. Tech Standard Bank Standard Chartered Bank Strate Telesure Trustlab Tyme. Bank ZARX

SARB Expression of Interest (EOI) www. safbc. co. za Confidential

Background SARB Expression of Interest issued 29 April 2019 Non-compulsory briefing session held on 14 May 2019 EOI applications closed 6 June 2019 SAFBC members request to meet / consult on the EOI Assumption for the meet up is that participants have read the EOI SAFBC presentation taken EOI document and briefing session Confidential

Context • EOI issued by the Currency Management Department • NO decision has been made by SARB to issue a CBDC – the study is part of an investigation • NO intention of getting rid of cash but they are looking for a parallel digital equivalent. • The solution MUST be as close to cash as possible including real time payments. It must compliment cash – pegged one to one with the Rand • "Digital legal tender supply chain" • The SARB has done a lot of ground / theoretical work and want practical validation Confidential

Context cont • • Financial and price stability remain key Cyber focus and current risks No mention of cryptocurrencies / blockchain! Interoperability with the current banking system and no disintermediation of the commercial banks • Longer term, if they decide to go ahead, they will look for ecosystem partners to test this (e. g. commercial banks, retailers, man on the street etc) • KEEP IT SIMPLE Confidential

Purpose of EOI To practically investigate the feasibility, desirability and appropriateness of Central Bank issued Digital Currency to be used as Electronic Legal Tender, complimentary to cash. Confidential

Confidential

Definitions • Three key characteristics of Digital Currencies: • In electronic form; • Not the liability of anyone; and • Feature peer-to-peer exchange. • Central Bank Digital Currency (CBDC) means money which is: • Denominated in fiat currency (central bank money); • In electronic form; and • A liability on the central bank balance sheet similar to cash and central bank deposits. Confidential

Types of CBDC What appears to be emerging in practice and distinguishes between two potential types of CBDC, both of which are electronic central bank -issued and peer-to-peer: • Wholesale CBDC available only to financial institutions; and • Retail CBDC accessible to the general public. The focus of this initiative is limited to Retail CBDC, accessible to the general public, as Electronic Legal Tender (ELT) Confidential

Approach Explore potential use cases and deployment models in a Innovation Lab (sandpit) environment, considering: • legal and regulatory aspects; • monetary policy implications; • financial stability impacts; • practical implementation approaches and implications; and • technical and security aspects. Confidential

Stages SARB intends to execute the feasibility project in two stages: –Stage 1: Internal to the SARB environment in order to test principles, validate proposed technical solution(s) and enhance the body of knowledge. –Stage 2: Extend participation to selected banks, mobile network operators, and potentially to service providers and niche technology suppliers in order to address the full value chain. Confidential

Libra by Facebook (and others) www. safbc. co. za Confidential

Confidential

The name Libra comes from the word for a Roman unit of weight measure. It’s trying to invoke a sense of financial freedom by playing on the French stem “Lib, ” meaning free. Confidential

Libra Overview • Libra lets you buy things or send money to people with nearly zero fees. • You’ll pseudonymously buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using interoperable third-party wallet apps or Facebook’s own Calibra wallet that will be built into Whats. App, Messenger and its own app. • Facebook is launching a subsidiary company also called Calibra that handles its crypto dealings and protects users’ privacy • Facebook won’t fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association (Switzerland) • Founding members of the Libra Association will earn interest on the money users cash in that is held in reserve to keep the value of Libra stable. • Paid $10 million to be a validator node Confidential

Confidential

Libra as a Stable Coin • Libra is meant to stay largely stable (key as a medium of exchange) and merchant acceptance / confidence • Not pegged one-to-one • The Libra’s value is tied to a basket of bank deposits and short-term government securities • Dollar, pound, euro, Swiss franc and yen. • The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.

The Poor Regulator Confidential

The Poor Regulator • Of global systemic importance • Jeremey Powell (U. S. central bank chief) is unsure how regulators will handle Libra • Concerns about money laundering and financial instability problems • Customer privacy – regulators to not have the authority to apply the same rules they apply to banks to Facebook / Libra • May need a new regulator in the USA • Delays whiles politicians and regulators get on board Confidential

The Bitcoin Irony – US Senate Hearing • “The volatility of bitcoin … means it won’t be put in widespread use. While [Libra] is supposed to be put into wide use, ” • “Unlike bitcoin, where there is no central issuer claiming to have assets backing the currency, you do have to trust the Libra Association. ” Confidential

Incentives • • Confidential The Libra Association wants to encourage more developers and merchants to work with its cryptocurrency. Wallets that pull users through the Know Your Customer anti-fraud and money laundering process or that keep users sufficiently active for over a year will be rewarded. For each transaction they process, merchants will also receive a percentage of the transaction back. Creates competition between wallets to see which can pass on the most rewards to their customers, and thereby attract the most users. Example: Spotify’s challenge has been potential users lacking accessible payment systems – especially for those in financially underserved markets. Libra allows them to access their total addressable market, eliminate friction and enable payments in mass scale.

SAFBC Meeting with Facebook Confidential

Thank you www. safbc. co. za Date: 1 October 2018 Confidential