The National Treasury launched a full-frontal assault on South Africa’s burgeoning crypto industry when it published its draft Capital Flow Management (CFM) regulations on 17 April. The proposed regulations – currently open for public comment until 18 May – are a draconian threat to private property rights, privacy, and the rule of law in South Africa. They should be resisted by all freedom-loving South Africans.

The CFM regulations are published under the Currency and Exchanges Act of 1933. They are intended to replace the existing exchange control regulations introduced in 1961 by the National Party to curb capital flight during the apartheid era.

In 1994, the incoming African National Congress (ANC) government clung to exchange controls despite liberalising other areas of the economy. At the time, the ANC justified this in the name of maintaining macroeconomic stability, but the anachronistic controls persist to this day.

Now the National Treasury and the South African Reserve Bank have introduced new draft regulations to “modernise” and overhaul the capital controls framework. The new regulations seek to introduce a “positive bias” approach and reduce pre-approvals through a risk-based surveillance model.

However, in doing so, the National Treasury is also tightening the regulatory net on cryptocurrency (and gold), with serious curbs on financial freedom, privacy, and ownership – and severe penalties for non-compliance.

Some of the most onerous of the proposed regulations include:

Trading limits – Investors cannot trade crypto assets above a certain threshold other than with an authorised Crypto Asset Service Provider (CASP), without explicit permission from the National Treasury.

Mandatory disclosure – The draft regulations mandate South Africans to declare their crypto holdings to the government.

Self-custody risks – The regulations make self-custody practically risky in practice and heavily constrained because declared crypto may not be sold, transferred, or disposed of without permission, and crypto transactions above thresholds must go through authorised CASPs or require permission. This undermines the very premise of Bitcoin: self-ownership without reliance on financial intermediaries or government authorities.

Usage restrictions – When purchasing crypto from an authorised CASP, investors must state the specific purpose of the transaction and are prohibited from using the crypto for any other purpose.

Forced sale – The National Treasury can force crypto holders to relinquish their assets to the state in exchange for South African rand at a rate to be determined by the government itself.

Forced key disclosure – Government officials can compel any person to hand over passwords, encryption keys, decryption keys, and any other credentials. Refusing to hand over these credentials is a criminal offence.

Warrantless search and seizure – Government officials may enter your home or place of work, search you, seize your devices, copy your data, and attach your property. Moreover, they can do so without a warrant.

Punitive sanctions – Failure to comply with these regulations can result in a fine of at least R1 million or an amount equal to the value of the contravention (whichever is greater) or five years in prison or both.

Why the Rush?

South Africans have been given a mere 22 days to comment on the most substantial overhaul of capital control regulations in six decades. The 18 May deadline is rapidly approaching.

Unlike ordinary legislation, which must pass parliamentary approval, regulations can effectively be implemented overnight through the stroke of the minister’s pen.

This enables the government to bypass the legislative process and implement far-reaching rules by executive decree, eroding accountability between the public and elected representatives. It also promotes a discretionary rather than a rules-based approach to governance.

In a country accustomed to bureaucratic inertia, it is revealing that these regulations are being treated with such urgency. It is reminiscent of how the Expropriation Act was quietly signed into law during the Christmas holidays of 2024 in the hope that nobody would notice.

The similarities do not end there. Measures such as asset forfeiture, mandated thresholds, and warrantless search and seizure amount to expropriation without compensation by another name.

State Capture

Thankfully, Bitcoin operates on a decentralised network, which no government can shut down. Bitcoin continues to function in countries with outright bans. However, governments can still make life difficult for those who hold the asset.

Larger, established CASPs with greater compliance capacity might be able to adapt to these new requirements, but individuals and smaller firms will find it difficult, if not impossible, to comply. It will also raise the risks of capture by the state, giving regulators the power to withdraw CASP accreditation if service providers don’t play along with government edicts.

South Africa is blessed with a vibrant ecosystem of fintech entrepreneurs, start-ups, and growing retail adoption of Bitcoin.

Customers of Pick n Pay can now buy their groceries using Bitcoin instead of rand. Meanwhile, circular Bitcoin economies have emerged in towns across the Western Cape, such as Witsand, Plettenberg Bay, and the informal areas of Mossel Bay.

The new regulations would undermine this burgeoning sector by forcing merchants and consumers who use Bitcoin as a medium of exchange to obtain government approval for every transaction. It would make otherwise simple transactions needlessly complicated and time-consuming to process.

Instead of building their businesses and adding value to others, these entrepreneurs must now turn their attention to defending their vital economic interests against government overreach. If the National Treasury has its way, these innovative and productive people might be forced to shut down or take their businesses, their skills and their capital to more favourable jurisdictions.

Capital Flow

Capital goes where capital is treated best. In a globally interconnected world, investment tends to go towards countries that protect private property rights, where local laws are rational, transparent, and enforceable, and where the returns on capital can be realised and expatriated.

It’s a counterintuitive point. Countries that make it easier to take money out are more likely to convince investors to put it in. Panama, Singapore, Mauritius, and the United Arab Emirates are global trade and financial hubs for this exact reason.

As economist Chris Hart posted on X.com: “There is only one purpose for capital controls – that is to shield bad policies. Countries with good policies have no need for capital controls.”

Hart is right. South Africa has pretentions to being a “Gateway to Africa” but its policy framework doesn’t reflect this ambition.

Government’s efforts to weaken, rather than strengthen, private property rights, its willingness to impose extractive policies like such as Black Economic Empowerment (BEE), and its punitive tax regime make it a hard sell for investors. Its latest attack on cryptocurrency further weakens the investment case.

Instead of trying to obstruct and punish those who seek to externalise their wealth, the National Treasury should be thinking of better ways to attract investment in the first place.

Ansara is CEO of the Free Market Foundation.