A group of South Africa’s prominent financial institutions have come together to create a rand-backed stablecoin, ZARU, another sign of the growing use and adoption of cryptocurrencies in the country.
A key part of the initiative’s strategy is pursuing the lucrative cross-border payments market, an area in which legacy finance houses have traditionally been slow and costly to execute.
On Tuesday, the collective comprising a collaboration of Luno, a Sanlam unit, EasyEquities and Lesaka announced the move.
A stablecoin is a cryptocurrency designed to maintain its value by pegging it to another asset, such as a fiat currency. The most common of these is the dollar.Examples of stablecoins include USD Coin and Tether. The other main peg for stablecoins is commodities such as gold or oil.
Every ZARU issued will be pegged to the rand, backed by “high quality liquid assets denominated in rand” managed by Sanlam’s Specialised Asset Management unit, a licensed financial services provider.
Blockchain, the technology that powers cryptocurrencies such as bitcoin, has until recently been regarded as fringe and associated with finance scams. But in recent years it has gained mainstream acceptance, driven largely by big fund managers such as BlackRock.
“Historically, payments, cross-border trade and remittances involving the rand have been slowed by traditional banking hours and fees. ZARU solves this by operating on a blockchain, providing a trusted, fully rand-backed digital currency that enables instant payments,” said the digital currency’s partners.
According to the collective, though ZARU may be traded abroad, the underlying rand-denominated assets will remain in the South African financial system, driving demand for rand-denominated assets globally.
The collective is selling the fact that stablecoins can be traded at any time of day, 24 hours a day, seven days a week. This is no different for normal fiat currency trading, which carries no office or business hours, unlike the stock market and related legacy financial markets.
In addition, blockchain technology allows for global trade and instant settlement of trades.
With some market players still wary about the legitimacy of cryptocurrencies, the collective assured users that ZARU’s banker will be Standard Bank, with reserves verified by audit house Moore Johannesburg monthly.
For now, ZARU is only available to “qualified” institutional investors through the Luno and EasyEquities trading desks, meaning it is unavailable to retail investors.
‘Milestone for South Africa’
James Lanigan, CEO of Luno, said: “ZARU is a crucial milestone for South Africa’s digital economy. It’s designed to make everyday payments and money transfers faster and cheaper, while fully supported by secure reserves that help strengthen the local financial system.”
For Lesaka’s executive chair, Ali Mazanderani, the move is an opportunity to “support the evolution of South Africa’s payments infrastructure through this partnership. We believe ZARU is exceptionally well positioned to accelerate the speed and reduce the cost of rand payments, benefitting consumers, businesses and society as a whole.”
EasyEquities CEO Charles Savage and Sanlam’s Jacques le Roux echoed the sentiment about enabling cheaper, faster payments.
