The Treasury wants to replace its 1961 exchange control rules with new regulations to control capital flows. Its primary objective, however, is to bring bitcoin and other crypto currencies under state control.
A potential “lifeline” for citizens
Many South Africans are wary of buying bitcoin because its market value is so volatile. It has nevertheless protected many Venezuelans from the monetary collapse unleashed by the large-scale expropriations and other damaging policies integral to its “21st century socialism.” With hyperinflation wiping out salaries and savings, many Venezuelans turned to bitcoin to bypass currency controls and preserve value.
Opposition leader María Corina Machado calls it a “lifeline” that helps citizens escape government-imposed exchange systems and safeguard their savings. It has also allowed at least some Venezuelans – from among the 7.9 million that have emigrated since 2014 – to carry their savings digitally with them.
Perhaps because bitcoin offers such lifelines, South Africa’s National Treasury now seeks to subject all cryptocurrencies to draconian state controls. Instead of crafting legislation for this purpose – which would be subject to parliamentary scrutiny – the Treasury is trying to smuggle in these controls via its proposed Draft Capital Flow Management Regulations of 2026 (“the Regulations”).
Crypto asset regulations under a 1933 Act
These Regulations are to be adopted under the Currency and Exchanges Act of 1933. However, there is considerable doubt as to whether a 1933 statute – which was enacted 50 years before personal computers began to become widespread – can provide sufficient authority for new rules regarding the trading of digital crypto assets.
The 1933 Act is naturally also oblivious to the 1996 Constitution, with its Bill of Rights, its commitment to upholding the rule of law, and its emphasis on the separation of powers between the legislative, executive and judicial branches of government.
The Treasury nevertheless seems to have assumed that the Regulations need only be in line with the regulatory powers given to it under the 1933 statute. It has also failed to comply even with this limited requirement.
Conflict with the Constitution
The Regulations conflict with constitutionally guaranteed rights in various ways. For example, in prohibiting the “exporting” of bitcoin, they allow enforcement officers to search for and “seize” any bitcoin they “reasonably suspect” might otherwise be exported.
The Regulations’ badly drafted clauses go on to say that such bitcoin “shall be forfeited to the state for the benefit of the National Revenue Fund,” unless “the Treasury…in its discretion, directs [that it] be refunded or returned.”
The Regulations further provide that the owner of forfeited bitcoin must “upon written demand made by National Treasury…furnish full particulars in writing of all and any passwords, personal identification numbers or codes which are necessary to enable National Treasury to obtain access to and control over the crypto assets and their disposal.”
These rules are extraordinary. They begin by making the absurd assumption that bitcoins – digital assets recorded on a distributed ledger, identical copies of which are stored on thousands of computers spread all over the world – are located in a single country and can be “exported” to another.
The rules also infringe the right to privacy in Section 14 of the Bill of Rights. This gives everyone the right “not to have their person, home…[or] property searched, their possessions seized, or the privacy of their communications infringed.”
In addition, by allowing forfeiture prior to adequate proof of an offence – while sometimes putting the burden on affected owners to avert this via litigation if they can – the Regulations conflict with Section 25 of the Constitution. Since forfeiture would result in the “compulsory acquisition” or effective expropriation of the bitcoin in issue, the onus lies on the Treasury to ensure that the “nil” compensation envisaged has either been agreed with the owner or “decided or approved by a court” before ownership can pass to the state.
The Regulations are unconstitutional in other ways as well. Some of their poorly worded rules are so uncertain as to conflict with the doctrine against vagueness of laws. Other rules, particularly those dealing with crypto assets, are ultra vires the 1933 Act and unconstitutional on this ground too. In addition, the executive cannot usurp the law-making functions of Parliament by crafting new law without reference to the legislature.
Likely economic damage
The likely economic damage from the Regulations merits careful consideration too. Most Western democracies do not have comprehensive exchange controls of the kind the National Party government adopted in 1961, the ANC government has retained, and the Regulations seek to extend and expand. By contrast, countries with similar controls include Cuba, China, Iran, Russia, Venezuela and Zimbabwe.
As economist Chris Hart has pointed out: “There is only one purpose for capital controls – that is to shield bad policies. Countries with good policies have no need for capital controls.” Potential investors are well aware of this, which is why they prefer to invest in countries that do not constrain the repatriation of capital and the returns it has earned.
South Africa cannot afford to give potential foreign investors still more reason to avoid it. Its limping economy urgently requires much more fixed investment into the factories, machines, ports, roads, and energy infrastructure needed to increase productive capacity, quicken the growth rate, and generate millions more jobs.
For many years, however, the country’s fixed investment rate has languished at around 15% of GDP a year: well below the 26% that is the global norm and half the 30% the National Development Plan seeks to attain by 2030. In 2025 its fixed investment rate was even lower, at 13.7% of GDP.
Raising the fixed investment rate from 13.7% of GDP to 25% of GDP or more is a critically important need. The country cannot rely on its domestic savings to achieve this, as its annual savings rate (at around 16% of GDP) is too low. In these circumstances, the only way to boost the fixed investment rate is to attract the capital required from elsewhere in the world. The Regulations will make this more difficult to achieve.
A “tick-box” approach to public consultation
The Treasury has paid scant regard to the constitutional obligation to “encourage…the public…to participate in policy-making.” When it gazetted the Regulations for public comment, it failed simultaneously to release a comprehensive socio-economic impact report on their likely costs and consequences, as government policy requires.
It also failed to comply with the National Policy Development Framework of 2020, which requires policy assessments to be “informed by the best available evidence, data, and knowledge.” The Framework adds that policy makers must actively engage with all stakeholders on the likely “impacts and risks” of their policy proposals – and avoid a “tick-box” approach to public consultation.
Yet a tick-box approach is precisely what the Treasury has adopted. It began by providing a scant 19 working days for public comment by 18 May, which was clearly insufficient. Under public pressure, it has now extended this deadline to 30 June 2026. It also seems to be trying to ward off well-founded criticisms of the Regulations by pretending that their provisions do not mean what they say.
A recent press statement claims, for example, that “holders of crypto assets” will only “be required to sell these to the state…under limited circumstances, such as where an offence has been committed.” This is far from what the current wording provides.
The press statement also says that “a draft manual will soon be released for public comment to complement the draft Regulations. This draft manual will provide clarity on the proposed activities that would result in a crypto asset transaction being considered as cross-border and the transaction being subject to appropriate capital flow management measures.”
An accompanying manual can hardly suffice to cure the defects in the Regulations. Nor can it have the same legal status as properly adopted ministerial regulations. And if the Treasury is still working out when crypto asset transactions can “be considered as cross-border”, then the Regulations are clearly premature.
As the IRR plans to point out in its submission, the Regulations are so flawed that they must simply be withdrawn. No amount of tweaking – and no accompanying manual – can bring them into line with guaranteed rights, the rule of law, and the doctrine of the separation of powers.
[Image: Brian Wangenheim on Unsplash]
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