An extraordinary legal decision earlier this year that cryptocurrency is not subject to exchange controls could spark major changes to the environment for bitcoin and other digital currencies, industry and legal experts say.
For a case with this kind of impact, Standard Bank of South Africa versus the South African Reserve Bank (SARB) has surprisingly not entered public discourse. For holders of crypto assets on local platforms though, it has been much discussed within the crypto community.
The Gauteng high court decision, handed down in May, found that certain crypto assets are not “currency” (or “money” or “capital”) under the exchange-control regulations. This means that owners of bitcoin, for example, can legally transfer this cryptocurrency abroad.
According to Steven Boykey Sidley, professor of practice at the Johannesburg Business School and author of several books on crypto, it’s possible they have been doing so in significant quantities. “Rumours around my network indicate that billions of rands have left the country since the ruling, which started almost immediately as people realised they could externalise funds without legal hazard from SARB,” he says
However, Farzam Ehsani, CEO of VALR, the largest crypto exchange in South Africa by trading volume, says he has not seen any unusual activity or flow in the time period before and after the judgment. VALR processes well over R10bn of trading volume every month. “Not a single person told me that they were moving their funds off VALR because of the judgment,” he says.
In this case, judge Mandlenkosi Motha found that the crypto assets in question do not qualify as “money” or “foreign currency” under regulation 3(1)(c) of the exchange-control regulations, and that such crypto assets are not “capital” (for purposes of regulation 10(1)(c). Thus, their export does not fall within those exchange-control provisions.
The issue arose because the SARB’s financial surveillance department had frozen R16.4m held as security for a defaulted loan after the borrower transferred bitcoin out of the country. Motha emphasised that because the regulations impose severe consequences (forfeiture and blocking orders), they must be interpreted restrictively. In other words, since the legislation does not expressly include crypto assets in the definitions of “money” or “capital”, the court declined to extend those definitions by interpretation.
The court explicitly noted that it is for the legislature or regulator to amend the regulations to cover novel asset classes such as crypto, and strongly implied that the current framework is outdated. As it happens, an amendment to South Africa’s exchange-control regime that would include crypto as “currency” has been pending in parliament for four years.
The case is being appealed by the SARB, and it seems likely that the amendment will eventually be passed. As a result, crypto remains in a regulatory grey zone with respect to exchange controls and other aspects of its use. But legal experts say that, for now, transferring crypto outside South Africa is unregulated due to a loophole in the exchange-control framework and therefore does not constitute a breach.
Amendments expected
Cliffe Dekker Hofmeyr’s sector head for technology and communications, Tayyibah Suliman, says the exchange-control regulations do not provide a neat, exhaustive definition of what constitutes “capital”. The operative rule is that no person may enter into a transaction “whereby capital or any right to capital is directly or indirectly exported” without approval.
Suliman, together with associates Sadia Rizvi and Izabella Gutlar-Balkovic, says in a written response to Currency, that courts and policy have historically interpreted “capital” broadly – well beyond cash – to include rights and assets whose value can be expatriated (including exports of intellectual property).
The SARB’s own guidance frames the regime as preventing the export of capital/value and safeguarding reserves.
“However, the South African Reserve Bank is appealing the high court judgment, and changes may come in 2026. It is also possible that amendments to the exchange-control regulations will be passed to close the loophole. Banking clients should therefore expect change in this regard.”
However, they say, while crypto flows are in a temporary limbo, Financial Sector Conduct Authority licensing, Financial Intelligence Centre obligations and South African Revenue Service compliance still apply.
The trio add that the purpose of the exchange-control regulations is to safeguard the economy by preventing capital flight and managing foreign-currency reserves.
“While some may see exchange-control regulations as red tape, they are crucial for economic stability. We expect amendments to include cryptocurrency under exchange-control legislation, applying similar controls as for legal tender.”
Still, there may be other consequences if that happens. If cryptocurrency is classified as “currency” for foreign-exchange purposes, Sidley says, it could enable banks to open bitcoin accounts – something they have so far been prevented from doing.
The Cliffe Dekker Hofmeyr trio add: “Major banks in South Africa have been hesitant to adopt cryptocurrency due to regulatory uncertainty. If regulatory clarity is achieved, we foresee major banks adopting cryptocurrency and integrating blockchain technology. Currently, smaller players dominate the market for cryptocurrency wallets and payment methods.”
Ehsani agrees: “Crypto regulations have come a long way in South Africa over the past few years, and they will continue to be clarified and refined in the years to come. Ultimately there won’t be any financial institution in South Africa, nor the rest of the world, that doesn’t have a crypto offering for its customers.
“And this will come so much sooner than people anticipate. It’s already happening. VALR’s crypto infrastructure already powers some of the largest banks and fintechs in Africa and beyond and you’ll soon see announcements of these crypto offerings being launched”.
He adds: “Looking forward, the pace of change has accelerated and the future of finance is on-chain, powered by cryptography. Our financial world is already digital, so there is no reason that funds shouldn’t flow as seamlessly and nearly as cheaply as an email.”
Top image: Rawpixel/Currency collage.
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