South African court rules cryptocurrency is not money or capital: Policy and legal implications

by Jude Ayua

The South Africa High Court has ruled that cryptocurrencies are not subject to the country’s exchange control regulations. The court based its ruling on the fact that under South African law, cryptocurrency does not meet the legal definitions of “money” or “capital.”

Background of the case

Leo Cash and Carry, a South African wholesaler, got into trouble with the South African Reserve Bank (SARB) for allegedly using cryptocurrencies to export funds abroad. According to a report by PwC, Leo Cash and Carry opened an account with VALR, a cryptocurrency exchange, and conducted frequent transactions involving rands and bitcoins between September 2019 and March 2020. Notably, LCC sent 4,405.9783 bitcoins, valued at approximately R556 million, to Huobi Global, a Seychelles-based cryptocurrency exchange, in 2019. This transaction represented about 75.72% of the total bitcoins sent by Leo Cash and Carry to Huobi Global.

The SARB’s Financial Surveillance Department investigated Leo Cash and Carry’s activities and froze its accounts, alleging that the company had contravened exchange control regulations.

The case started with Standard Bank suing the South African Reserve Bank (SARB) after the SARB seized R16.4 million (approximately $1 million) from the Standard Bank account belonging to a client, Leo Cash and Carry. The client became insolvent as a result of the seizure. Standard Bank placed a lien over the funds. However, the SARB claimed forfeiture of the funds because Leo Cash and Carry had purchased bitcoin (BTC) worth R556 million ($37 million) sometime in 2019 and transferred it offshore. Standard Bank argued that cryptocurrency should not be regarded as a form of capital for the purposes of the exchange control contending the forfeiture as unjustified. On 15 May 2025, the High Court of South Africa, ruled that cryptocurrencies are not subject to exchange controls under current legislation, as they don’t fall within the definitions of “money” or “capital”. However, the SARB has appealed this decision, arguing that the court erred in its interpretation.

Key Points:

Case Background: Leo Cash and Carry’s alleged use of cryptocurrencies to export funds abroad led to an investigation by SARB’s Financial Surveillance Department.
Transactions in Question: Leo Cash and Carry sent significant amounts of bitcoin to Huobi Global, a foreign cryptocurrency exchange.
Court Ruling: The High Court ruled that cryptocurrencies aren’t subject to exchange controls, but the SARB has appealed this decision.

Implications: The outcome of this case could have significant implications for cryptocurrency regulation in South Africa.

Ruling

Judge Mopho ruled in favor of Standard Bank, maintaining that South Africa’s exchange control laws must be interpreted narrowly against the SARB’s broad forfeiture powers.

“The answer lies in one’s interpretation of the word ‘currency’,” M.P Motha, Judge in the High Court of South Africa, Pretoria, wrote. “Cryptocurrency is not money,” stated Judge Motha, referencing an article which SARB initially cited. The article stated that cryptocurrencies are “nothing more than codes on a digital ledger.” By implication, cryptocurrencies have “a borderless, global nature.”

With regards to South Africa’s current exchange control regulations, the Judge concluded as follows:

“To me, on any construction, much less on a restrictive interpretation, cryptocurrency falls outside the ambit of capital under Reg 10(1)(c). I agree with the counsel for the applicant that a regulatory framework addressing cryptocurrency is long overdue.”

Judge Motha also stated that cryptocurrency does not currently fall under the legal definition of capital. This is despite lawmakers having introduced Excon Regulation 10(4) which defines the word “capital” to include intellectual property rights. Therefore, if the scope of “capital” was to be extended to include cryptocurrency, this must be addressed only through legislative process, similar to the case of intellectual property rights.

“Cryptocurrency has been in existence for over 15 years – one cannot say SARB has been caught napping,” the judge noted.

Given this ruling, the court set aside SARB’s forfeiture of the funds.

Legal implications of the ruling

1. Legal basis of the ruling

The court’s ruling is based on a narrow interpretation of South Africa’s exchange control laws, specifically the definitions of “currency” and “capital” under the Currency and Exchanges Act and related regulations. The judge’s reasoning aligns with judicial precedents which interpreted notable cases of intellectual property. In those precedents, courts excluded non-traditional assets from the definition of “capital” until explicit legislative amendments were made.

2. Cryptocurrency is not “money” or “capital.”

The court adopted a strict constructionist approach, concluding that cryptocurrencies, described as “codes on a digital ledger,” do not meet the statutory definitions of “currency” (legal tender issued by a central bank) or “capital” (tangible or financial assets subject to exchange controls). This conclusion follows global central bank positions, including the SARB. Ironically, this position undermined SARB’s attempt to justify the forfeiture of funds linked to cryptocurrency transactions.

Recommendation for legislative reform

The Judge’s remarks exposed a gap in South Africa’s regulatory framework around cryptocurrencies, noting the need for specific legislation to include exchange controls. The judge particularly observed that “SARB has not been caught napping.” This observation is a critique of the SARB ’s failure to proactively exercise regulatory oversight over cryptocurrencies, regardless of its 15-year existence.

1. Statutory interpretation and judicial precedent

The ruling follows South African courts’ precedent of narrow statutory interpretation, particularly in cases involving the SARB’s exercise of its forfeiture powers. The court’s requirement of the explicit legislative inclusion of cryptocurrencies under exchange controls impliedly limits the SARB from overreaching its regulatory authority. This approach could protect individuals’ and corporate organizations’ rights to own and use cryptocurrencies. However, it demands lawmakers to adapt regulations to emerging technologies.

2. Weak legal framework

In addition, the ruling exposed vulnerabilities in South Africa’s exchange control regime, which was designed for traditional financial systems. Given its traditional design, the regime struggles to accommodate decentralized and borderless assets like cryptocurrencies. The absence of a clear regulatory framework leaves South Africa in a legal gray area, which could encourage unregulated crypto activity. It may also expose the country’s financial system to risks like capital flight.

Policy implications

The court’s ruling has national, regional and global implications for South Africa, including the following:

1. National level

The ruling creates a temporary window for South African residents and businesses to engage in cryptocurrency transactions without fear of exchange-control violations. This could lead to a surge in demand for BTC and other cryptocurrencies and potentially hike local prices.
Standard Bank’s victory may be momentary. A rush to convert fiat currency into cryptocurrencies and transfer funds offshore has negative implications. This action can reduce bank deposits and liquidity, threatening the stability of South Africa’s banking system.
The ruling suggests the urgency for South Africa to update its exchange control laws. The Financial Sector Conduct Authority (FSCA) already regulates crypto exchanges. However, comprehensive legislation addressing cryptocurrencies’ status under exchange controls becomes more critical. Without the right reforms, South Africa risks becoming a hub for unregulated capital outflows, potentially destabilizing its economy.

2. Regional

South Africa’s relatively advanced financial system and crypto market make the county a regional leader in Africa. This ruling could influence other African countries, especially in Southern Africa, like Namibia, Botswana, and Zimbabwe, which face similar challenges with capital controls. Also, if South Africa’s crypto market grows unchecked, it could facilitate cross-border capital flows, undermining regional monetary policies.
Other African nations, including Nigeria and Kenya, have taken varied approaches to cryptocurrency regulation. South Africa’s ruling may influence regional regulators to clarify their stances, potentially leading to a patchwork of regulations that complicates cross-border crypto transactions and enforcement.

3. Global implications

The International Monetary Fund (IMF) has warned that cryptocurrencies’ peer-to-peer nature enables capital flight in emerging markets and threatens macroeconomic stability. South Africa’s ruling sets a precedent that could encourage individuals and entities in other jurisdictions to challenge capital control regimes.
The ruling could implicate South Africa before the IMF, which has advocated for stricter controls on cryptocurrencies to prevent capital flight. If South Africa fails to enact timely legislative reforms, it could face more criticism from the IMF. It may also impact South Africa’s access to IMF support or credit ratings.

To address the potential risks emerging from this ruling, South African regulators must act swiftly to update its legal framework. The SARB and other regulators must aim to balance innovation with economic stability, aligning with global standards. The ruling calls for regulators worldwide to be proactive in adapting to the evolving nature of digital assets. South Africa could adopt a sandbox approach, allowing controlled experimentation with cryptocurrencies while it develops crypto-specific regulations.

Key considerations for Policymakers and regulators in Africa

Policymakers and regulators in Africa can best approach the challenge of cryptocurrency regulation by striking a balance between innovation and financial stability. Here are some key considerations:

Regulatory Framework

Develop comprehensive legislation addressing cryptocurrencies’ status under exchange controls, ensuring clarity on definitions and regulatory oversight.
Establish a clear regulatory framework that accommodates decentralized and borderless assets like cryptocurrencies.

Innovation and Experimentation

Adopt a sandbox approach, allowing controlled experimentation with cryptocurrencies while developing crypto-specific regulations.
Encourage innovation while ensuring regulatory compliance and protecting consumers.

Financial Stability and Economic Safety

Implement measures to prevent capital flight and money laundering, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
Monitor cryptocurrency transactions and collaborate with law enforcement agencies to investigate and prosecute financial crimes.

Regional Cooperation

Encourage regional regulators to clarify their stances on cryptocurrency regulation, potentially leading to a harmonized approach.
Address cross-border capital flows and monetary policy implications.

Global Standards

Align with global standards and best practices, considering the International Monetary Fund’s (IMF) warnings on cryptocurrencies’ potential impact on macroeconomic stability.
Ensure regulatory frameworks are adaptable to the evolving nature of digital assets.

Key Recommendations

Legislative Reform: Update exchange control laws to address cryptocurrencies explicitly.
Regulatory Oversight: Ensure proactive regulatory oversight, avoiding overreach while protecting consumers and maintaining financial stability.
Industry Engagement: Foster dialogue between regulators, industry stakeholders, and consumers to create a balanced and effective regulatory environment.

Jude Ayua is a policy analyst at CAB. A lawyer, Jude is an associate at Infusion Lawyers where he is a member of the Blockchain & Virtual Assets Group. He is also a member of the Policy & Regulations Committee of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN). Jude reports and writes on crypto policy and regulations. jude@infusionlawyers.com

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