BoB closes door on cryptocurrencies
Mbongeni Mguni | Friday April 9, 2021 17:10
On Tuesday, Reuters reported that the global cryptocurrency market capitalisation had hit an all-time peak of $2 trillion (P22 trillion), led by its most popular product, Bitcoin, whose own market capitalisation was at a record $1 trillion (P11 trillion).
Bitcoin was by far the world’s top-performing asset class last year, rising by 300% and providing returns 10-times better than the next best performing asset. The cryptocurrency’s performance beat the combined gains of gold and the Dow Jones stock market by a factor of 10, as investors flocked to Bitcoin with the coronavirus (COVID-19) decimating economies and traditional markets.
However, central bank officials said there were no discussions or consideration of further expanding the foreign reserves investment guidelines to include cryptocurrencies. “The Bank is neither considering reviewing its policies and guidelines to include cryptocurrencies,” Seamogano Mosanako, head of communications and information services told BusinessWeek in a written response.
“These speculative assets are neither subject to any clear governance and/regulatory framework across jurisdictions nor within acceptable risk parameters established by the Board, which is a prerequisite for any instrument to be included in the Bank’s investment universe.”
The foreign reserves, which include the Pula Fund, were measured at P58.7 billion as at November 2020, from P70.6 billion in November 2019, due to withdrawals associated with COVID-19. During that period, the Pula Fund, a sovereign wealth fund representing the country’s savings for future generations, fell to P45.9 billion from P55.6 billion.
By comparison, in 2020, local pension funds saw their assets jump from P94.3 billion to P105.2 billion, an all-time high. The pension fund said the performance was made possible through active investment by fund managers who were able to identify high return asset classes and markets.
The BoB’s returns on the foreign reserves for 2020 will be known on April 30 when the central bank releases its 2020 Annual Report.
While the BoB is traditionally conservative in its investment guidelines, since 2019 it has expanded to new markets, currencies and credit rating thresholds. Mosanako told BusinessWeek since 2019 there had been investment in 24 currencies across eligible and qualifying asset classes and currencies, with 21 being in deep liquid global markets, while three are in the markets with credit ratings below BBB+.
Previously, the bank was limited to investing in dollars, pounds, yen and euros, certain markets and specific credit ratings.
She said the central bank was satisfied with the returns from its expanded investment guidelines.
“The diversification benefit was evident in the protection of the portfolio from extreme volatility while optimising on the returns, as can be observed from the income derived from foreign exchange reserves of P1.8 billion in 2019 compared to P1.6 billion in 2018, even as the level of foreign exchange reserves decreased from P71.4 billion to P65.2 billion during this period,” she said.
Mosanako added that the investment guidelines prioritised safety, liquidity and return, “in that order”.
“This is in order to, first, preserve the purchasing power of the foreign exchange reserves, second, ensure continuous availability of foreign exchange to the local economy, and third, maximise opportunities for increasing the value of the reserves,” she said.