Amid concerns that politicians in the ruling party are making a grab for the Reserve Bank’s independence, former governor Tito Mboweni has taken to Facebook to school the ‘ignorant and uniformed’ about how the institution operates.
Earlier this week, Business Day reported that mineral resources minister Mosebenzi Zwane has suggested to the cabinet that it withdraw the Sarb’s authority to license banks and make it the responsibility of the finance minister.
Bloomberg further reported that ANC deputy secretary-general Jessie Duarte’s said that the Reserve Bank should cushion the rand and the fact that it’s privately owned is a “difficulty.”
Bloomberg opined that the comments heighten concern that some members of the ruling African National Congress are seeking to curb the independence of South Africa’s top state financial institutions.
On Wednesday, Mboweni posted a note on Facebook highlighting the importance of the Sarb.
The entire post is below:
DEFEND THE SOUTH AFRICAN RESERVE BANK!
1) Against the background of the most recent attacks on the South African Reserve Bank (SARB), I thought it prudent to say a few words about the Bank. This might help the ignorant and uniformed who rush to attack without the requisite knowledge of the SARB.
2) There is a vast amount of published and unpublished literature on the Bank which I rely on. For example, the legendary book by MH De Kock: Central Banking, 1956, which was reprinted in many editions and also one by his son, Gerharld De Kock, The History of the South African Reserve Bank. And also one by Stephen Gelb: The Origins of the South African Reserve Bank (1989). Lastly, Professor Jannie Rossouw: The South African Reserve Bank, History, Functions and Institutional Structure ( 2009).
3) This posting is not an academic treatise and thus I wish not to be quoting any book in extension. To strict academicians like the Van Onsellens, I might be accused of “stealing” other people’s words. So please forgive me for that.
4) The SARB is a creature of law. The Currency and Banking Act, 1920, Act No. 31, 1920. The first bank to be established in South Africa was the Lombaard Bank in Cape Town on April 3, 1793. It was owned by the Cape Colonial government. Then there were a number of banks established thereafter. Many of them failed. The SA Reserve Bank opened its doors for business in 1921. Do yourself a favor and visit the ABSA Banking Museum in Johannesburg to learn about banking in South Africa.
5) Following the currency crisis of 1918/1919, a decision was made to establish a CENTRAL BANK. Remember that before that, private banks could issue currency backed up by GOLD. In the ensuing negotiations between the government and the private banks, the following arrangement was reached:
5.1) the private banks would stop issuing currency,
5.2) a common central bank would be established as the central authority to issue currency and regulate private banks,
5.3) there would be private shareholders and the government would reserve the power to appoint the Governor and three deputies Governor plus four members to the Board of Directors. Private shareholders would appoint seven other directors to balance the representation so that none had a majority in decision making but the Governor would have a deciding vote should a deadlock arise.
5.4) no-one was to have more than ten thousand shares. ( Incidentally, I own ten thousand shares in the SARB and receive a fixed dividend, taxable, of R1000.00 a year). Not much!
6) In today’s world, the SARB follows all the most recent corporate governance rules and procedures.
7) What does the South African Reserve Bank actually do? What are its ‘Purposes and Functions’?
7.1) formulates monetary policy! set the target bank interest rate. The decisions are taken by the Monetary Policy Committee (MPC). The current mandate, given by the government, is to ensure that inflation, the Consumer Price Index (CPI) stays within the 6-3% range. This is called flexible inflation targeting.
7.2) management of the South African money and banking system. Issues banking licenses ( which is what Minister Zwane apparently does not like! Hard luck mate!), regulates the banks ( any deposit taking institution). The regulation of banks is the task of the Registrar of Banks in terms of the Bank’s Act.
7.3) Banker to the government,
7.4) Banker to private banks.
7.5) Issuer of currency, the Rand and Coins. In fulfillment of this function, the SARB has two subsidiary companies: The SA Mint which mints the coins and the SA Bank Note Company that prints the paper money. These companies operate under the strict corporate governance rules and international best practice and standards.
7.6) management of the national payment and settlement system
7.7) management of financial surveillance.
8) In short, before you open your mouth and shout crazy, ignorant things about the South African Reserve Bank, please read this and visit the SARB website for more literature. The ANC has long ago resolved these issues. Read ANC literature as well and the NEC Economic Transformation Committee (ETC) could assist. No leadership must act and look so stupid! At that level, we expect better.