National Treasury has announced a new approach to exchange controls, adopting a “positive bias” to managing cross-border capital flows. In response, the industry was welcoming, guarded and, well, sceptical – until the actual crypto regulations came out.
The change in Treasury’s direction was first signaled in the budget, and some concrete steps have already been announced, like the doubling of the single discretionary allowance limit for private individuals from R1m to R2m per calendar year.
There were a host of other announcements, too, including a potentially significant decision to allow asset managers to run non-rand funds from a South African base. This is because places like Mauritius, Dubai and increasingly Kenya and Kigali have been much more successful in attracting South African financial firms to do just that.
In interviews over the past few weeks, Treasury officials have been keen to emphasise a more facilitative approach to financial flows. In an interview with Reuters, Vukile Davidson, deputy director-general of financial policy, said exchange controls were once used to “manage the domestic revenue base, to manage illicit flows, to ensure the stability of the financial sector.” That “blunt instrument” is now being replaced with more targeted reforms, he said, signalling South Africa’s readiness to modernise.
So far, so good.
But the proof of the pudding is in the eating, and the eating has been provided in a document called Draft Capital Flow Management Regulations, 2026, which was published by National Treasury for public comment on 17 April 2026. And far from a “positive bias” the actual regulations are just as blunt as foreign exchange regulations have always been in South Africa.
Draconian tools
The regulations say nothing really about improving capital flow, but have pages and pages about restricting crypto transfers, and are draconian in the application, and, according to industry players, actually threaten their existence.
The essential problem is that crypto assets are precisely designed to avoid state control, especially when imposed by an overbearing, authoritarian state, which is why they are so popular in Venezuela, Cuba, Argentina, Nigeria and, as it happens, South Africa.
And for South Africa, the problem was that during Apartheid, capital had a deep desire to avoid economic misery. Now, it has a deep desire to avoid stultifying economic policies, ineptitude, and corruption. So there has been an odd tacit symmetry between the old order and the new to keep exchange controls intact in an attempt to keep capital locked up in the country.
The Treasury is a little bit caught in the middle here. It is possible that politicians, in the ANC in particular and other parties in general, hate the idea of capital freedom, because they consider capital flight to be a kind of racist treason. They might think that the desire to externalise capital is the domain of awful rich people that benefited from Apartheid trying to hide their ill-gotten gains, as opposed all race groups trying to escape government’s mismanagement of the economy. But Treasury officials themselves now recognise that SA is losing the competitive battle to countries like, gasp! Kenya.
The problem, though, goes further: government is finding itself out of step with not only global developments, but even local intellectual and legal currents – and arguably, the Constitution itself. Since 1933, and even since 1994, money has been sloshing around the world in massively increasing quantities. Capital movement has gone from being mostly constrained, bank-centered and national to being far more open, market-based, faster, larger and more volatile.
Just how much bigger is evident in the Bank for International Settlements (BIS)’ Triennial Central Bank Survey, which found for example that foreign exchange markets reached $9.6-trillion per day in April 2025. Although it’s a different measure, that is equal to the entire US GDP changing hands every single day. In 1989, the first year it was more or less comprehensively measured, that number was $0.6-trillion.
A small, sad club of 14
In fact, there are now only about 14 countries around the world out of the 195 monitored by the IMF that have “severe” exchange controls, South Africa among them.
It means that the country, still with its Apartheid-era exchange control regime, has largely missed this whole financial revolution, which is partly why 500 companies have delisted from the JSE over the past three decades. But interestingly, even institutions outside of business now tend to look at capital freedom more positively.
Two recent cases demonstrate this trend. The first was Standard Bank of South Africa v South African Reserve Bank in which Pretoria high court judge Mandlenkosi Motha held that cryptocurrency is not legal tender in South Africa and, for the purposes of the case, does not fall within the concepts of “money” or “capital” in the old exchange control regulations.
The important part here is the reasoning. The court found these regulations can trigger forfeiture and criminal consequences, so the court said they must be read restrictively, not expanded creatively to catch new things by implication. Motha applied the principle that if a penalty provision is uncertain, the uncertainty should be resolved in favour of liberty, and that the regulations contained a regulatory lacuna because they simply said nothing about crypto assets.
Now, that lacuna has been slammed shut with enormous force.
The draft South African rules would pull crypto into the capital-flow regime, require cross-border crypto movements to fit within the new framework, and rely on “authorised crypto asset service providers” as the legal gateways for significant transactions.
Financial kragdaadigheid
It strikes at the two things the crypto community cares about most: permissionless movement of value and self-custody. The draft says contravening the regulations, breaching conditions, obstructing enforcement, or making false declarations can amount to an offence punishable by a fine of up to R1m, imprisonment of up to five years, or both. That is not a “positive bias”. That is old style financial kragdaadigheid.
The regulations essentially treat crypto as ordinary old money. But here is the problem: it’s not. Crypto is deliberately designed to escape state control basically in order to try and avoid state overspending-induced inflation. This is why self-custody is part of the package. And good luck to the Reserve Bank in trying to extract the 24-word seed phrase that constitutes a cryptographic private key recovery code from some ordinary Joe at the airport they suspect of having some crypto in his or her back pocket.
And what about the new dispensation for asset managers to run non-rand funds from South Africa? The new regulations say absolutely nothing about that. And even if they did, would asset managers take advantage of that facility?
Perhaps. It’s possible some international asset managers might want to take advantage of cheaper local talent and run their funds out of Cape Town. But generally, the larger local asset managers have already built extremely big businesses outside of South Africa, set up precisely to avoid being caught up in the exchange control regulations. And it’s not only that; tax considerations also feature.
There is another pertinent case here and that is Coronation Investment Management v Commissioner for the South African Revenue Service. This case threatened Coronation with an R800m tax bill and went all the way to the Constitutional Court. Once again, the result was a shock to government officials: Coronation won.
The issue was about the foreign-business-establishment exemption in section 9D of the Income Tax Act. The Constitutional Court held in June 2024 that Coronation’s Irish subsidiary qualified for the exemption, and said SARS had fundamentally misunderstood the distinction between fund management and investment-management trading.
Freedom to manage their affairs
The Court accepted that the Irish company’s actual business, carried on from Dublin under a delegated model, had sufficient economic substance offshore. Once again, the courts, and the apex court in this case, came out in favour at least in respect of tax, of a more liberal perspective on the freedom of South African companies to manage their affairs as they see fit.
So in order to avoid foreign exchange controls, local fund managers set up shop in low-tax jurisdictions to handle their clients’ foreign investments. It has now finally dawned on the government, after almost 100 years, that it is losing out on company tax and VAT to the countries in which these institutions are based.
The odd thing about exchange controls is that over the years, Government has, at the treasury’s insistence, gradually increased the discretionary allowance and the ability of fund managers to invest a proportion of clients’ funds outside SA. That means that in effect, exchange controls are becoming progressively less relevant to individuals. The R2m yearly allowance is probably higher than the total savings of 98% of the population.
But for companies, the process of making an application for foreign exchange is highly intrusive. All kinds of capital transactions are affected: offshore acquisitions, offshore payments, certain foreign loans, some securities transactions, loop structures, guarantees, treasury arrangements and non-standard cross-border group funding.
Developing countries particularly like capital controls because they turn foreign exchange transactions from a pure market outcome into something partly administrable. Zimbabwe, which is always experiencing forex shortages, is a good example.
It’s true that controls do help protect reserves, smooth the exchange rate, slow panic outflows, allow the prioritisation of scarce FX, and give the authorities better information.
But South Africa’s balance of payments is actually pretty healthy and has been, other than short periods, for decades, partly because SA’s mineral exports provide a consistent foreign exchange underpin. According to the IMF, South Africa’s net foreign reserves are about 6.44 months of imported goods and services in 2026; three months is considered by the IMF adequate.
Freewheeling Guptas
And there’s one other thing: the efficacy of foreign exchange controls is dependent on the ability of the Reserve Bank to effectively monitor them. Because the pressure to do so has been so slight over the years, the monitoring process is now effectively degraded.
The best example is that the Reserve Bank didn’t manage to prevent the high-profile Gupta family from externalising billions from SA in ordinary old cash; they didn’t need bitcoin or anything fancy; they just put in the forms which were routinely stamped as so many are. The Steinhoff case provides another example.
The basic problem is a tautology: the most effective way to inspire capital flight is to implement capital controls, and the only way to fight capital flight is with exchange controls.
Conversely, the relaxation of capital controls gives both locals and foreigners more confidence to invest not only outside of the country but domestically. This has been demonstrated countless times over the years as the era of capital freedom has increased. Capital freedom, ironically, makes capital controls redundant.
South Africa’s political class, both now and during the Apartheid era, has seemingly been unable to get their neanderthal heads around this contradiction with any determination.
Top image: Rawpixel/Currency collage.
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