South Africa Launches ZARU Stablecoin
South Africa has stepped into the digital currency arena with the introduction of ZAR Universal (ZARU), a stablecoin pegged to the rand. Unlike many other stablecoins that are tied to the U.S. dollar, this initiative seeks to elevate the rand’s status in the digital world but may face limitations outside South Africa.
Several key South African companies collaborated on launching ZARU, including Luno, Sanlam Specialised Asset Management, EasyEquities, and Lesaka. The stablecoin operates on the Solana blockchain, aiming for use as an alternative to global dominant currencies like the U.S. dollar and euro in digital finance.
The reserve assets backing ZARU consist of rand-denominated items, such as South African government bonds. This arrangement is designed to boost demand for domestic assets by keeping them within the country’s financial system.
Currently, access to ZARU is restricted to institutional investors through Luno and EasyEquities trading platforms; retail investment will be introduced at a later date.
Limited Domestic Benefits
A key benefit of ZARU lies in its potential for simplifying cross-border transactions among South African businesses, reducing reliance on the U.S. dollar and possibly cutting costs and speeding up transaction times.
However, prospects for wider international adoption appear uncertain. “While it offers an alternative to the U.S. dollar, mainly catering to South Africa-based transactions such as imports and exports, its broader appeal outside of South Africa is questionable due to lack of liquidity and higher volatility risk,” notes Joel Hugentobler, a Cryptocurrency Analyst at Javelin Strategy & Research.
Challenges for Euro-Backed Stablecoins
As highlighted by the Brookings Institute, nearly all stablecoins are currently U.S. dollar-backed, with only a small percentage tied to other currencies like the euro. Even stablecoins backed by more widely used currencies have struggled.
The case of Société Générale is illustrative. After two years of effort and achieving circulation of roughly $47 million, the bank decided to pivot its strategy towards a dollar-pegged stablecoin due to the challenges faced with creating an alternative.
