Quote of the week

The United States has declared war on cancer, on pornography, and on terror, and the lesson to be gleaned from those campaigns is that, unlike most other wars, those declared against common nouns seldom come to a precisely defined conclusion.

Melanie Cobb
The New Yorker
28 January 2010

Nationalisation of the Reserve Bank?

I was rather intrigued by news reports that Gwede Mantashe, Secretary general of the ANC, has hinted that the ANC-led government should consider nationalising the South African reserve Bank (SARB). Mantashe said that the “South African Reserve Bank is one of less than five central banks in private hands in the world”.

My first thought was a rather naive one: Surely that cannot be right? How can the SARB be privately owned? And if it is privately owned, who owns it and how can I buy some of those shares (that is, assuming I had any money to buy the shares with)? It would be rather nice to say I own part of the South African Reserve Bank and, I imagine, it would be a rather safe investment.

Well, Mantashe was right – sort of. When the SARB was established it was common practice for central banks to have private shareholders and as the Bank explains on its website:

The ownership structure of the SARB, however, has not been amended since its inception. It is a juristic person in terms of its own Act. The SARB has some 600 shareholders and its shares are pre-dominantly traded on an over-the-counter trading and transfer facility. The SARB is one of only nine central banks with shareholders other than the governments of their respective countries.

So, does this mean that getting rid of those private shareholders is a good idea or that it is constitutionally feasible to nationalise the SARB?

Section 224 of the Constitution states that the primary object of the SARB “is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic”. In pursuit of this objective, it “must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters”.

The constitutional position of the SARB is thus quite similar to that of the National Prosecuting Authority (NPA): its independence is constitutionally guaranteed and the government of the day is prohibited from interfering with the day to day running of the Bank or any of its decisions. (Menzi Simelane, the man purportedly appointed by President Zuma to head the NPA, might of course disagree with this blindingly obvious constitutional fact – either because he is very ignorant or very dangerous – but that would not change what the law says.) At the same time the Bank is required to interact with the government to ensure that the broad policy objectives of the Bank and the government are aligned.

Nationalising the SARB will not change this at all – unless the Constitution is amended to abolish the independence of the SARB to allow the Bank to follow the instructions of the government of the day. If Mantashe meant to say that it was perhaps necessary to abolish the independence of the Bank, he was obviously smoking the strong stuff from Swaziland or the former Transkei because we all know what will happen if the Bank started acting in the interest of a strong clique within the governing party.

If that happens the Bank will start to print money to finance the lavish lifestyles of the right kind of party faithful and to buy the loyalty of cadres and before we know it we will all become Rand millionaires and acquire terrific numeracy skills (without any assistance from the Minister of Education), as we will be running around with R10 00000000000 notes in our pockets to pay for a loaf of bread.

It does seem rather strange that the SARB has private shareholders though, but in practice this makes no difference to how the Bank operates. While seven of the fourteen members of the Board are appointed by the President and seven more are appointed by shareholders, the Governor of the Bank has a deciding vote on the Board, giving control of the bank to those appointed by the President. Shareholders cannot remove the governor or the other members of the Board and have very little power over the Bank.

The SARB Act can be amended without any constitutional problem to abolish private shareholding in the Reserve Bank – as long as those shareholders are adequately compensated. But, once again, this will make no difference to how the Bank operates as its independence is constitutionally guaranteed.

The “debate” about the nationalization of the Reserve Bank is therefore a red herring to hide disagreement in the ANC about more fundamental economic questions within the ANC alliance.

The larger economic question (which I am not in a position to address) is whether the Bank’s broad policies on inflation targeting, agreed to by the Bank and the Minister of Finance, is good or bad for the working poor and the unemployed. Those who are calling for the nationalisation of the Bank should rather engage the Minister of Finance (who the last time I checked was a communist) about the broad government policy framework on inflation targeting and interest rates if they wish to change the policies of the Bank.

Nevertheless, if anyone has some Reserve Bank shares they want to give away in the name of transformation I will be happy to accept on the basis of representing the gay and lesbian lobby! Given the overwhelming influence of money on our politics (Tokyo Sexwale gave lots of shares to influential opinion makers – remember Xolela Mangcu? – to buy some good publicity for himself and for Jacob Zuma) one of those Reserve Bank shareholders might believe if they give me some shares I will sing the praises of one politician or another.

I am happy for them to think that giving me shares will help their cause and will gladly take the shares – and then write exactly what I like in any case.

Just a (tongue in cheek) thought.

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