4 big changes the Reserve Bank is making in South Africa

The South African Reserve Bank (SARB) has announced a shift in how will monitor financial stability in South Africa, alongside other commitments to cryptocurrency regulation and climate change.

At the 102nd annual Ordinary General Meeting of the SARB shareholders, governor Lesetja Kganyago outlined four fundamental changes in how the central bank intends to do its business.

Securing financial stability 

The SARB is focusing more on maintaining stability in the financial system, said Kganyago.

This follows the emergence of a few financial stability risks and vulnerabilities, namely: a low growth environment, rising inflation, the cost implications of the July 2021 unrest, climate-related risks and geopolitical tensions between Russia and Ukraine.

Earlier this year, the Financial Sector Laws Amendment Act 23 of 2021 was enacted – giving the SARB the powers to act as resolution authority and establish the Corporation for Deposit Insurance, he said.

This corporation scheme will improve confidence in banking institutions, put South Africa on par with its international peers, and further align its financial sector to the principles of international standard-setting bodies, said Kganyago.

Operational matters

There are a number of initiatives currently underway looking to modernise the national payment system, said Kganyago.

SARB seeks to review the National Payment System Act and the payment system modernisation initiative that forms part of SARB’s Vision 2025.

“The evolution of payment technologies over the last few years has made the modernisation of retail and wholesale system infrastructures a key priority,” said Kganyago.

One of the programmes includes the real-time gross settlement (RTGS) system renewal that aims to:

• reform and modernise both domestic and regional payment settlement services;
• facilitate wider access to the payments system;
• improve efficiency by leveraging new technology and:
• address the security risks posed by cyber-threats.

It will also enhance payment services provision and address the challenges of access, speed, cost and transparency of payments for both payment service providers and consumers, added Kganyago.

To respond to market developments and embrace innovation in the fintech space, the SARB is working on several collaborative efforts under the Intergovernmental Fintech Working Group (IFWG).

Initiatives include the commitment to bringing crypto-assets into the regulatory ambit given the growth and proliferation of the assets and the resulting risks they pose in the form of illicit financial flows, among others, added Kganyago.

Climate change

The SARB is taking into account the financial implications of climate-related shocks from monetary policy in South Africa.

These projects are being implemented through various policies. The Economic Research Department is assessing the implications of climate-related shocks for monetary policy execution and implementation, said Kganyago.

“Climate change and the transition to a greener economy have the potential to generate larger, longer and often more frequent economic and financial shocks, with disruptive effects for economic activity and high inflation,” said Kganyago.

“Financial institutions play an important role in climate change adaptation and mitigation through the provision of funding. The work of the Prudential Authority and the Financial Stability Department is focused on improving the financial sector’s resilience to climate-related risks and incorporating climate-related information in funding and insurance decisions.”

Kganyago added that climate change indicators, disclosure and taxonomy rules will become part of the prudential framework.

Staff and office matters

As a result of planned reservations to the head office building in Pretoria, the hybrid way of working that the SARB initiated during the pandemic will stand the staff in good stead, said Kganyago.

“The renovations are necessary to overhaul ageing infrastructure and perform a much-needed upgrade of our facilities.”

The SARB head offices are set to expand to enable easier access by the public. The bank is also going ahead with the addition of a museum to display South Africa’s financial history.

The Reserve Bank has started with these renovations and has appointed a contractor for the redevelopment and secured temporary office space.

It is envisaged that the temporary office space will be ready for occupation by 1 October 2022 while the new project is expected to be completed by the end of 2024, said Kganyago.

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