South Africa has to abolish exchange control
South Africa should scrap exchange control altogether, according to Simon Dingle, co-founder of rand stablecoin ZARP, who said the country’s capital…
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South Africa should scrap exchange control altogether, according to Simon Dingle, co-founder of rand stablecoin ZARP, who said the country’s capital controls have achieved the opposite of what they were designed to do.
“Ultimately, South Africa has to abolish foreign exchange control,” Dingle told TechCentral. “Unfortunately the damage has already been done, and the policies have achieved the opposite of what they set out to do; instead of preventing capital flight, they have accelerated it.”
That goes considerably further than the position taken in formal industry submissions, which have argued for narrower changes rather than abolition. It comes as the comment period runs on a draft framework that would bar South African companies from moving crypto across the border at all.
National treasury and the South African Reserve Bank published the draft Crypto Assets Manual for cross-border activities on 3 August. Under it, only natural persons may transact offshore in crypto, using the R2-million single discretionary allowance or the R10-million foreign capital allowance. Resident entities “may not enter into crypto asset transactions deemed as import or export of capital”. Comments close on 30 September, and the manual cannot take effect until the Capital Flow Management Regulations, gazetted on 17 April and which drew heavy industry fire, are promulgated.
Dingle put the price of the existing regime in terms of businesses that were never built in South Africa.
“Foreign exchange control has cost the South African economy billions, if not more, in lost investment and value being created outside of the country by entrepreneurs that have learnt from the example of Mark Shuttleworth and others that South Africa is a terrible domicile for intellectual property and growing businesses that require early-stage funding,” he said.
“This apartheid-era legislation is now forcing companies and individuals using crypto to consider other jurisdictions too, and the draft crypto legislation in its current form only makes this worse.”
Read: Treasury’s crypto crackdown is a betrayal of Mandela’s promise
Shuttleworth paid R250-million to the Reserve Bank in 2009 under a 10% exit charge when he moved about R2.5-billion offshore, and spent years contesting it. The supreme court of appeal found in his favour, ruling the charge an unlawful tax, but the constitutional court overturned that in June 2015, holding it to be a regulatory measure to discourage capital flight rather than a tax. The exit charge itself had been suspended in 2011.
Of the draft’s provisions, Dingle singled out the treatment of self-custody wallets as the one most in need of rework, calling it “not only misguided, but also unenforceable” and warning it “will massively stifle innovation”.
Under the draft, a transfer from a domestic authorised crypto asset service provider to a non-custodial wallet is one of the trigger points that makes a transaction cross-border – meaning a holder moving th…