Determining the risks posed to South African banks by cryptocurrencies

Abstract

Since inception, cryptocurrencies have exposed consumers to a unique, secure peer to peer mechanism of settling transacting that does not require a third party such as a bank. The Blockchain technology, upon which cryptocurrencies are developed, has been hailed as one of the greatest inventions in the history of record keeping. The Blockchain is also known as a distributed ledger technology and the concept of value, in this case monetary, exists on a distributed ledger, this concept been proven to poses some capabilities that are currently performed by traditional banks. These capabilities include the means for business to business, customer to business financial transactions and vice versa. Amongst the capabilities of this technology, users of this platform can conduct cross border transfers of funds; develop investment products that are based on cryptocurrencies which compete directly with products that are offered by banks. This research will apply institutional theory on the role played by South African institutions with regard to the regulation of cryptocurrencies. Institutional theory has been successfully applied in various studies that are presented in this research, these studies explore the impact of disruptive technologies on institutions, operators and societies. There are threats posed by the disruptive nature of technologies such as cryptocurrencies on the banking sector if these currencies are left unregulated for a significant amount of time. The South African banking sector plays a pivotal role within the country�s economy as it contributes towards employment and Gross Domestic Production; therefore it would be prudent for this sector to keep abreast of the technologies that could significantly disrupt its operations. Banks are perceived as the prime targets of the cryptocurrencies disruption and this is brought on by the bank�s complex administrative tasks, along with ever growing regulatory burdens. After having extensively reviewed the literature on cryptocurrencies, it was determined that there are definite risks posed to the South African banking sector by cryptocurrencies, hence the need to thoroughly explore these threats through qualitative and exploratory methods. Therefore; a total of 12 semi-structured, in depth interviews were conducted with senior individuals who are experts and work within the banking sector. The researcher�s decision to conduct research on this study was motivated by the inadequacy of the academic literature on the regulation of cryptocurrencies and the effects of cryptocurrencies on traditional banking models. The researcher�s supposition is to aid the South African banking sector and financial regulatory institutions to be better equipped when grappling with innovative disruptive technologies. The key findings of the study were not totally aligned to the literature as the researcher uncovered unique aspects of South Africa�s antecedents that influence behaviour of institutions and societies.