SARB’s dual mandate and nationalisation may be the key to inclusive growth

SAs annual inflation rate eased to 4.5 percent year-on-year in December from 5.2 percent in November as prices for fuel and food slowed in the period. Karen Sandison African News Agency (ANA)

ANC conference in December 2017 took a considered decision to nationalise the South African Reserve Bank. This decision was informed more by the evolution of the role of the Reserve Bank over the years than by any desire to change that role or interfere with the Banks independence or autonomy.

Historically, most Central Banks start as privately owned commercial banks who are also capacitated to be lenders to the government and or Bankers to the government. As time goes on, such banks expand their mandate, getting licence to print money, to regulate the banking space, to issue currency, to set interest rates, effectively becoming a financial government. As a result, such banks would then have to be taken over by government (because you cant have a governing entity outside the legitimacy of the electorate). The independence of the bank in setting monetary policy however is always preserved. 

In the case of the Bank of England, from 1694, when it was formed, it was a private bank with stockholders. It was nationalised in 1946. The power to set monetary policy independently is always seen as sacrosanct and preserved. Althought there was a time after being nationalised when its monetary policy was set by the Chancellor, this was later reversed, and the Banks power to set monetary policy was returned. 

Bank of England has shown that a central bank can be wholly owned by government and still independently set monetary policy. South Africa is one of only eight central banks that have not been nationalised and continue to have private shareholders. These are Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey. 

Whenever the issue of nationalising the Reserve Bank comes up, its opponents are quick to point out how the private stockholders have such limited to absolutely no role in the Bank; why temper bother with them. They will tell you ‘Private shareholders of SA’s central bank have no say over the mandate, functioning, governance and independence of the Bank in undertaking its work’. 

The question thats never answered is why keep them then if they are so irrelevant. Some stockholders will tell you that they have the shares purely for access, access to the Banks executive at annual shareholder meetings etc. Access amounts to influence. Influence is the key. 

What is true is that a South African Reserve Bank which is privately owned should never have power to issue currrency, print money, set interest rates and run our economy. That would effectively make the Central Bank a parallel government and given the reach of its role and power, strategic power which affects all other livers of government, that would be a very powerful government.

The question is what would change if the Reserve Bank were to be nationalised. Firstly all 2m shares issued by the bank to about 660 shareholders would have to be bought back. Then the 7 of the 15 board members who are elected by  shareholders would have to either be reappointed by the state or be replaced. The bank operation would remain the same. Thats about the size of change to be expected. 

There is nothing more too this nationalisation of the bank more than that. The more contentious aspect of ANC resolution is in reference to the banks constitutional mandate. ANC’s election manifesto has said, the SARB “must pursue a flexible monetary policy regime, aligned with the objectives of the second phase of transition”. The current bank mandate is that ‘The Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa’. 

What the ANC wants is for the Reserve Bank, like the Federal Bank of the United States, to have a dual mandate. That dual mandate is price stability and full employment. We want the Reserve Bank to actively and explicitly pursue full employment, which is described by many economists as 4-5% unemployment. We are currently  sitting at 25% unemployment.

This dual mandate has long been dismissed by the current Reserve Bank Governor, Lesego Kganyago. In a speech at a Fedusa conference 3 years ago, Kganyago said, ‘despite its fanciness, macroeconomic policy has little influence over the level of potential or trend growth. Therefore, we actually play little role in the size or speed of wealth accumulation or employment creation”. 

This of course  is absolute nonsense. The Bank must be nationalised and its mandate must be expanded. We need that more than ever if we are to ever hope to do a real and lasting dent on unemployment. Twicking a half a percentage here and another 50 basis point there wont cut it.

We should have long declared our unemployment a national crisis and should have injected a real stimulus in trillions of rands into the economy to give ourselves the economic leap forward we so desperately need. The inflation range of 3-6% may well be for countries without the kinds of deadly problems like ours. Maybe a little flexibility is what we need.

In the end, sacrificing a little value of our rand purchasing power for more people to have that rand may well be the sacrifice we need. If Lesego does not think poor people deserve a little sacrifice from us, he must get out of the way.

Yonela Diko is a political commentator.