Nationalisation of the Reserve Bank back on the menu in South Africa
The South African Reserve Bank (SARB) Amendment Bill—which aims to make the central bank a state-owned entity—will undergo further public hearings.
The Standing Committee on Finance, in consultation with the office of the National Assembly Speaker, has resolved to conduct a second round of public hearings on the Bill.
The Bill was tabled in 2018 as a private member’s Bill by EFF leader Julius Malema.
The first round of public hearings on the Bill were held in November 2018. The Bill then lapsed in May 2019 and was revised by the sixth administration in November of the same year.
It would again lapse before the 2024 national election—but was revived in June.
The SARB Amendment Bill aims to amend the SARB to make the state the sole shareholder of the bank’s shares and give the Minister of Finance powers to exercise the rights attached to the bank’s shares on behalf of the state.
It also allows the Minister of Finance power to appoint board directors instead of electing members at an ordinary general meeting.
The Bill can be found below:
How the SARB is structured
The SARB is a private institution, and since its establishment, it has had private shareholders.
The bank has 800 shareholders and trades its shares on an over-the-counter share transfer facility (OTCSTF) market coordinated within the Bank.
Only the shareholders who reside in South Africa are entitled to vote at the AGM, and they are allowed one vote for every 200 shares held.
Notably, shareholders have no rights or involvement in determining monetary policy (interest rates), financial stability policy or financial sector supervision.
Their rights are limited to considering the SARB’s annual financial statements, electing seven executive directors of the Board of Directors, appointing external auditors and approving remuneration. All these activities are done at the SARB’s annual general meeting (AGM).
There is also no limitation on shareholding, apart from the provision of the South African Reserve Bank Act that no shareholder shall hold, or hold in aggregate with their associates, more than 10,000 of the total number of 2,000,000 issued shares.
After paying company tax on profits, transfers to reserves, dividend payments of not more than 10 cents per share to shareholders, and allowing certain provisions, the surplus of the Bank’s earnings is still paid to the South African government.
The SARB’s aims are thus not driven by profit but rather by the country’s best interest.
However, the government does have some involvement with the SARB.
The President appoints the Governor and Deputy Governors of the SARB and four other members of the 15-person board.
Moreover, the Minister of Finance sets the inflation target on which the Monetary Policy Committee (MPC) makes decisions. The target is currently 4.5%, but the central bank wants it lowered.
Concerns
Although politicians from within the ANC and EFF have called for the nationalisation of the Reserve Bank, there are concerns that such a move would lead to significant economic disasters.
The Reserve Bank is currently controlled by technocrats who often make sound, but unpopular decisions, such as raising the repo rate to a 15-year high of 8.25% last year to curb inflation.
While there are debates on these moves, they often come from others with economic expertise and understanding.
There is a concern that politicians—who often lack this expertise and serve only their own, or their party’s interests—would be more prone to chasing political wins among voters to the detriment of sound policy.
For example, had politicians been in control of monetary policy ahead of the 2024 elections, there would have undoubtedly been a drive to lower interest rates to bring relief to households.
It does not help that one of the key reasons for the inflationary pressure on households (necessitating interest rate hikes) is the government through above-inflation price hikes for administered services.
Although a more dovish approach to interest rates could lead to some economic growth, it could also lead to massive inflationary pressures. Thus, the SARB has been cautious and hawkish in how it manages monetary policy to avoid this outcome.
Politicians meddling in economic matters could also spell disaster for the rand—which the Reserve Bank is mandated to protect.
For example, the state-owned Reserve Bank of Zimbabwe created hyperinflation of the Zimbabwean dollar after it increased the money supply (“printed more money”), essentially making the currency worthless.
Thus, there are concerns that a similar event could occur with the rand if the SARB became state-owned.
“Printing more money” to resolve budgetary constraints in South Africa has been floated before—as has talk of nationalising the Reserve Bank—and each time markets have reacted negatively towards the notion.
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