Dont mess around with the reserve bank

Outside view building of South African Reserve Bank in Pretoria. FILE PHOTO: Bongani Shilubane/ African News Agency (ANA)

On 12 September 2017, the Daily Maverick reported that the South African Reserve Bank had lodged an affidavit in the Pretoria High Court regarding collusion between Public Protector, Busisiwe Mkhwebane, and Jacob Zuma’s legal advisers to launch an attack on the independence of the South African Reserve Bank. According to the affidavit, she was proposing remedial action calling for an amendment of the Constitution to strip the Reserve Bank of its constitutionally entrenched power to protect the value of the Rand. 

Her meeting with the State Security Agency which was even more astonishing was alleged to be aimed directly at undermining and attacking the Reserve Bank. It was the Public Protector who started the attack on the Reserve Bank. 

A year and a half after the attack on the Reserve Bank by Busisiwe Mkhwebane, the Cabinet announced on 22 August 2018 that it had no concerns about the proposed changes to the ownership of the SA Reserve Bank.  On the other side of the mouth, Mokonyane said that Cabinet was reiterating that the independence of the SARB was a notable strength for the economy. She added that South Africa was understood to have a number of strengths as an economy, and that chief among these was an independent central bank. Therefore the cabinet was committed to maintaining these strengths.

SARB officials and South Africans have a right to be mystified about the prevarication and confused stance of the cabinet. The Reserve Bank has a board made up of 15 members. Eight of these members, four of whom are the Governor and the three Deputy Governors, are all appointed by the President.

The shareholders elect the balance of the seven members. In this respect, the South African Reserve Bank operates much like its counterpart in Belgium, Greece, Italy, San Marino, Switzerland, Japan, and Turkey. The mandate of the South African Reserve Bank comes directly from the Constitution.  Its shareholders have no influence on monetary policy. In the UK, Sweden and Denmark, the government has ownership of the central bank. However, none of these countries has the problem of many corrupt cadres subverting their country’s institutions and repurposing them for daylight looting. 

This, therefore, begs the question: what is the fuss about?

Of the seven members elected by shareholders, each has to have expertise in some area. One must be an expert on agriculture, one on labour, one on mining, two on industries and two on finance. These seven members contribute specialist expertise and play an important role in ensuring proper governance. Imagine if the Reserve Bank had been nationalised and Jacob Zuma had entrusted the Guptas to nominate the seven members of the board. Planeloads of gold would have left our shores by now.

The Reserve Bank model should, in fact, have been used for ESKOM, SAA, TRANSNET and other SOEs. Having trusted and genuine experts who are independently appointed by the public would have helped enormously with the governance of the state-owned enterprises and in the prevention of wholesale looting.

Compromising the real independence of the Reserve Bank can never be in the national interest. Any loss of the value of the rand affects every single citizen, the workers and the poor in particular. The need to keep inflation in check is in the national interest. The interference of President Erdogan in his country’s national bank combing with other exogenous factors, caused that country’s Lira to lose 36% of its value. We should learn from Turkey’s experience and also from that of Argentia’s experience in this regard. 

The South African Reserve Bank has 2 million issued shares. No group of shareholders can hold more than 10 000 shares. By law shareholders are entitled to annual dividends that cannot exceed 10c per share per annum. After tax, the effective earning is, therefore, 8c per share.

The very big advantage to the public of the present arrangement is those general meetings allow the public and the media to be present and questions to be asked. This enhances both transparency and accountability. Furthermore, the direct involvement of the public in asking the Governor questions on the bank’s activities and on its financial performance allows for a better understanding of the monetary policy. Investors gain confidence from such an exercise and are willing to invest in the economy.

As a result of the High Court’s decision allowing a maximum of 10 000 shares to be held by associated shareholders, there are 149 200 SARB shares available for purchase at a price of R1,55 per share, by members of the public. Any shareholder with a total of 200 shares is entitled to a single vote. At present, the Reserve Bank has two million issued shares. These are held by about 650 private shareholders. A transformation of the ownership to better represent South Africa’s demographics is what needs to happen now. The issue of nationalisation is going to be a disastrous route. 

While the Reserve Bank has managed monetary policy very well and has, in general, fulfilled its constitutional power in terms of Section 225 as the lender of last resort to prevent financial instability in the banking sector, it did fail to detect the price fixing of the currency by the big banks. It was the Competition Commission that uncovered that. This is something that the Reserve Bank must monitor more closely.
Finally, it is worth noting that nearly 90% of the profit realised by the Reserve Bank goes into government coffers. Clearly, private individuals and companies are not the main beneficiaries. The profit motive is certainly not an issue in owning shares. 

COPE believes that the government should stop interfering with the Constitution. In particular, it should not mess with what is still working. It has messed up enough with so many state institutions that it should have learnt by now that it must leave well alone. We, as ordinary South Africans on the other hand, need the South African Reserve Bank to achieve and maintain price stability. We do not want to go with a basket of printed notes to go and buy a loaf of bread if and when it is available on the shelf. Many of us have had personal experience changing rand into Zim dollars only to be refused goods in exchange for those worthless Zim dollars. I left my Zim dollars on a table at the airport. No one was interested in them. 

We should also look at what is happening in Venezuela. If we want extreme grief, we will allow the government to interfere with the South African Reserve Bank’s present set up.

Farouk Cassim served as COPE’s Senior Parliamentary Researcher for a period of 6 years and played an integral part in the development of policies and manifestos for COPE. Farouk is a frequent contributor to the Cape Times & Cape Argus on matters concerning Cape Town municipal issues.