South Africa is one of the most banked countries on the continent, with an estimated 85% of adults having bank accounts. We have plenty of middle-class and working-class people who are used to having a bank account, using NFC tap payments, using ApplePay or Visa and MasterCard credit and debit cards, but this isn’t the reality for most people.
Having a bank account is one thing, but having funds and using a bank account to transact is an entirely different metric, one we don’t have oversight into, but we can make some assumptions. Despite the high rate of bank accounts/access to digital banking services, around 33% of South Africans surveyed claim to prefer cash.
Why? For several reasons.
- Cash doesn’t have transaction fees.
- Cash works anywhere during load shedding/scheduled backouts.
- Bank accounts are used as transfer points, not to store funds.
- eCommerce services provide cash-on-delivery options.
- Cash can be moved quickly and cheaply through money services networks that don’t require standard bank accounts.
- South Africans can’t afford to save anything.
- Large grey market vendors run only on cash, as digital payments are costly to process
- South Africans don’t trust banks.
And why should we?
There is no institution that has state ties to it that can run efficiently, and banks aren’t any different.
South Africa’s history of bank failures.
In the past 30 years, we’ve seen 13 banks fail and head into liquidation, so on average, a bank fails every 2-3 years in South Africa.
| Bank | Year of curatorship | Reasons |
|---|---|---|
| Alpha Bank | 1990 | Fraud |
| Cape Investment Bank | 1991 | Fraud |
| Pretoria Bank | 1991 | Bad management and a dubious merger with Masterbond |
| Alpha Bank | 1993 | Liquidated |
| Sechold Bank | 1994 | Liquidity problems due to a loss of depositor and investor confidence |
| Prima Bank | 1994 | Liquidity problems due to non-performing loans |
| African Bank | 1995 | Bad management and liquidity problems |
| Community Mutual Bank | 1996 | Liquidity problems due to a very high expense-to-income ratio |
| Islamic Bank | 1997 | Bad management and improper accounting, particularly around unsecured lending. Liquidated |
| FBC Fidelity Bank | 1999 | Bad management and liquidity problems |
| Regal Treasury Bank | 2002 | Auditors rescinded their approval of the bank’s controlling company’s financial statements, which caused a run-on. Liquidated |
| New Republic Bank | 2002 | Bad management and liquidity problems |
| Saambou Bank | 2002 | Bad management and liquidity problems |
| African Bank | 2014 | Bad management and liquidity problems, particularly around unsecured lending |
| VBS Mutual Bank | 2018 | Bad management and liquidity problems |
The fall of VBS bank.
The last local bank to fail in recent memory is VBS Mutual Bank; it was declared insolvent and bankrupt and placed under curatorship in 2018, with South African citizens and taxpayers defrauded from roughly R2 billion.
The bank reportedly had around 30,000 depositors, with all deposits in the bank totalling R800 million. In 2017 the bank planned to list on the Johannesburg Stock Exchange; however, it never got that far before fraud, corruption, and mismanagement brought it to its eventual demise.
VBS was a regional bank with most of its branches and clients located in Limpopo, one of the country’s poorer provinces, which hit these communities hard, as personal and business accounts were left high and dry.
This case also reignited the debate on why South Africans don’t have protection when it comes to storing money in the bank.
We’ve never had bank insurance until now.
As of April this year, South Africans can lay claim to a safety net for their bank deposits. The South African Reserve Bank has established the Corporation for Deposit Insurance (CODI), the first and only deposit insurance body that protects bank depositors and brings further confidence to a resilient financial sector.
CODI became a legal entity as of 24 March 2023, as set out in the commencement schedule published by Finance Minister Enoch Godongwana. While CODI is a statutory body and a subsidiary of the SARB (South African Reserve Bank), it has an independent board to manage and oversee its affairs.
CODI is a result of the global financial crisis in 2008; the Group of Twenty (G20) tasked the Financial Stability Board (FSB) with developing policies to address the ‘too-big-to-fail’ problem, and what they came up with was a half-backed solution to backstop depositors who have always been unsecured creditors of a bank. CODI collaborates with South African financial institutions and other stakeholders, including the World Bank, to ensure a smooth implementation of the deposit insurance scheme.
The idea of deposit insurance is that if a bank were to fail, the deposit insurance company will pay up to R100 000 worth of qualifying deposits to the depositor within 2-3 weeks hopefully to minimise the welfare loss.
Kuben Naidoo, Deputy Governor at the South African Reserve Bank
What to do with your uninsured capital?
If we accept that R100 000 of our savings in a bank account are secure, what do you do if you can ammas more than R100 000 in savings in a general bank account? What incentive would there be to risk having uninsured funds with a bank, especially if all they’re giving you is a measly interest rate return?
Have multiple bank accounts.
The most obvious option would be not to have a single bank account but to bank with multiple banks and play the odds. It’s easy to set up accounts with different banks up to the insured amount or have a shared account with relatives or family members with different banks.
Now apart from the privacy issues of sharing accounts, or the admin nightmare of setting up and managing all the accounts, you’re also adding to bank charges and having to move funds between accounts to ensure you’re not overextended on your primary account.
Bitcoin, on the other hand, is super simple; you set up a wallet, create multiple public keys, and you can put as much money into your wallet as you like, and you only pay when you move it; that’s it.
You can have as many wallets as you like, and it doesn’t add to the cost, and you can store your Bitcoin in a digital wallet, which can be accessed from anywhere in the world with an internet connection, your smartphone or computer. Bitcoin also has no withdrawal or deposit limits, so you can send and receive funds as long as you’re happy to pay the mining fees to move UTXOs.
Invest it in other assets.
Another option for your surplus savings is to go out and invest it; you could purchase stocks in local companies, Bonds, ETFs, REITs, unit trusts and a host of other securities. However, you have yet to determine if the companies you’re investing in will be affected by a bank failure and if those assets will be impacted.
Another issue with South African Rand-based investments is that they’ve performed poorly compared to international stock markets like the US. In fact, you could have held dollars and, in most cases, outperformed many local assets, never mind the return you would have gotten holding a US dollar-based asset.
Bitcoin is global; it’s not tied to the failures of one market, especially one as small and insignificant on the global stage as South Africa. Bitcoins security is rooted in its decentralised nature by eliminating the need for intermediaries and providing a distributed network of computers; Bitcoin can offer a high level of security and privacy.
Take capital offshore.
Getting started with Bitcoin may seem intimidating, but the process is relatively straightforward compared to navigating the offshore market channels we have available today. To get your money offshore, you need to work with regulated brokers, some have access to the US, others the UK, and you’ll have to research their strategies, their returns etc.
Offshore investments are tightly regulated as the government wants to limit capital flight as much as possible, so you could exhaust your allocations and eventually have to settle on another avenue that can absorb that purchasing power, namely Bitcoin.
By educating yourself and understanding the basics of Bitcoin, which is how to buy it and store it, you can take advantage of its potential as an alternative form of bank failure insurance and long-term store of value. There is also no limit to the amount of Bitcoin you can own, where you plan to store it and how you move it.
All Bitcoin information is publicly available, and you need not trust anyone; you can run the code on a node and verify everything yourself.
Hold physical assets, cash or foreign currency.
Another option is to put your wealth in something tangible, something you can hold in your hand. This could be precious metals like gold or silver, local cash bills or foreign cash bills like the US dollar. While you may be outside the banking system now and you’ve gone dark, you also leave yourself open to attack; a classic home invasion, which happens in the thousands every month in South Africa, will turn into a big score for a criminal who comes upon your home as their next target.
Alternatively, you can find third-party storage for these assets, but this will eat into your funds as you have to pay for the secure storage of these assets.
In Bitcoin, all you need is 12-24 words saved in any form you like, paper, steel, or encrypted digital file on a USB, and you can store as much money as you want. These storage formats are small, easy to hide and obfuscate, and you can even distribute them geographically at little to no cost.
You’re made whole in nominal terms.
When banks fail, require bailouts or customers are backstopped, that money or liquidity has to come from somewhere, normally through the issuance of more credit. Governments can print more money to stimulate the economy, pay off debts, or act as the lender of last resort when banks go bust.
While it may save the depositors from eating the absolute losses, this additional money printing can lead to inflation and ultimately decrease the currency’s value. So while you’re made whole in the actual number in your account, that R100 000 is going to be able to fetch you a lot less than it once did.
Conversely, with its finite supply, Bitcoin ensures that it is not susceptible to the same inflationary pressures as fiat currencies. This makes it an attractive option for those seeking a safeguard against currency devaluation. Bitcoin has a fixed maximum supply of 21 million coins, meaning it cannot be devalued through inflation as traditional currencies can.
Have an out when things go South.
While most South Africans have not yet experienced a bank failure, it’s an eventuality you need to plan for and consider your options. In a country where our power grids are failing, our law enforcement is short-staffed and corrupt, and our physical infrastructure is in shambles, what makes you think our banking system has zero holes in it?
When we consider how many banks internationally have failed in 2022 and 2023, it might make you a little anxious about the security of their savings. It is now more crucial than ever to consider alternative ways of protecting one’s finances.
South Africans should consider Bitcoin as a viable option for safeguarding their wealth against potential bank failures. Its decentralised nature and resistance to inflation make it a promising long-term investment opportunity.
I am not telling you to go all in on Bitcoin, but if you feel there is a non-0 chance of a bank failure in South Africa, consider deploying some capital to an insurance policy each month in the form of digital sound money. In this instance, don’t consider Bitcoin an investment but a monthly premium in a decentralised and secure form of bank failure insurance.
Do you take self-custody of your stack?
If you’re new to bitcoin and have not ventured down the self-custody rabbit hole, what is stopping you? If you’re already self-sovereign, how has the experience been since you took hold of your funds? Let us know in the comments down below. We’re always keen to hear from bitcoiners from around the world.
