President Cyril Ramaphosa says the South African Reserve Bank should be owned by the people, as he renewed the ANC’s promise to nationalise the central bank.
Speaking during a parliamentary Q&A session on Thursday (7 March), Ramaphosa said that nationalising central banks was nothing new, and that similar steps had been taken by a number of other countries around the world.
South Africa is one of only six countries that still had external shareholders in their central bank, he said.
“The United Kingdom used to have external shareholders in the 1940s. They realised that in order to advance the economy the Central Bank should be wholly-owned by the people of the United Kingdom.
“This is the done thing around the world,” he said.
Ramaphosa added that nationalising the bank would confirm sovereignty.
“Obviously, we need to go through the correct processes (when implementing nationalisation) but that is the position – there is no hidden agenda,” he said.
Despite Ramaphosa’s assurances, the rand was trading weaker on the announcement and was priced at R14.33 to the US dollar at 15:50.
“The markets are perceiving this as undermining the SARB’s independence which is largely negative for the local currency,” said Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.
“The full extent and nature of President Ramaphosa’s announcement will need to be analysed extensively to determine if government will have authority over the mandate of the SARB,” she said.
“The rand is demonstrating severe volatility and further potential depreciation is possible. The next important trading barrier for the rand will be at the R14.50/dollar level.”
Notably, Ramaphosa and the ANC appear to stand in opposition to reserve bank governor, Lesetja Kganyago, who has previously emphasised the importance of independence of the institution.
In a presentation at Stellenbosch University on Wednesday, Kganyago said that the bank’s independence was important in helping the SARB to achieve its mandate.
“The central bank independence allows the SARB to hear what different interest groups have to say, but gives it the policy space to make decisions about inflation that on balance benefit all,” he said.
“Independence also matters for ensuring effective monetary and fiscal policy coordination.
“Much monetary theory involves figuring out how to avoid high inflation and its impoverishing effects. Sometimes high inflation is caused by the excessive ambitions of sovereigns to spend fiscal resources on projects that do little to generate long-run economic growth.
“Continuous fiscal deficits reflect those ambitions, and because those deficits are financed with debt, they create a tax liability for citizens in the future.”