Public debate about the Reserve Bank is never too far away, and went up a notch higher in the run-up to South Africa\u2019s May 2019 national elections.<\/p>\n
The ruling\u00a0African National Congress<\/a>\u00a0said it intends to nationalise the central bank. \u201cThere is no hidden agenda, there is no\u00a0manga-manga<\/a>\u00a0business,\u201d President Cyril Ramaphosa\u00a0told<\/a>\u00a0a parliamentary\u00a0question and answer<\/a>\u00a0session in March 2019.<\/p>\n The ANC\u2019s push for nationalisation is supported by the\u00a0Economic Freedom Fighters<\/a>, the second largest opposition party. In August 2018, the EFF tabled the\u00a0South African Reserve Bank Amendment Bill<\/a>, which seeks to make the state the sole owner of the bank. It is still\u00a0under consideration<\/a>\u00a0by the National Assembly.<\/p>\n Nationalisation is\u00a0opposed<\/a>\u00a0by the\u00a0Democratic Alliance<\/a>, the official opposition. And several economists, including Reserve Bank governor Lesetja Kganyago,\u00a0say<\/a>\u00a0the bank should remain independent.<\/p>\n Yet others have\u00a0argued<\/a>\u00a0nationalisation will not make much difference.<\/p>\n But what does it all mean? There are many arguments, many of them confusing. In this factsheet we go back to the basics and answer nine key questions about the Reserve Bank.<\/p>\n 1. What is the South African Reserve Bank?<\/strong><\/p>\n The Reserve Bank is the central bank of South Africa.<\/p>\n It was\u00a0established<\/a>\u00a0in 1921 to protect South Africa\u2019s commercial banks after a rise in the gold price following World War I put them at risk. It took over responsibility for holding gold and issuing bank notes.<\/p>\n The bank has since taken on a number of other duties and its mandate is\u00a0protected<\/a>\u00a0by the South African constitution.<\/p>\n 2.\u00a0What does the Reserve Bank do?<\/strong><\/p>\n Its\u00a0main function<\/a>\u00a0is to protect the value of the rand, South Africa\u2019s currency. The bank says a stable currency\u00a0reduces uncertainty<\/a>\u00a0in the economy.<\/p>\n One way to protect a currency\u2019s value is by controlling\u00a0inflation<\/a>\u00a0\u2013 an overall increase in the price of goods and services.<\/p>\n Inflation is measured by defining a basket of goods and services that a typical person would buy. The increase or decrease in the cost of that basket over time gives you the\u00a0inflation rate<\/a>. A positive inflation rate means people have to pay more for the basket, even though no extra items have been added. It also leads to other \u201cdistortions\u201d in an economy.<\/p>\n The Reserve Bank tries to control inflation by setting a target for price increases from one year to the next. Currently, the inflation rate should\u00a0range\u00a0<\/a>between 3% and 6%. The bank tries to meet this target using policies such as setting the rate at which commercial banks can borrow money or requiring them to keep a cash reserve.<\/p>\n But why is a stable currency important?<\/strong><\/p>\n \u201cIt ensures that what I can load in my supermarket trolley this month can also be afforded next month or in six months from now without me having to adjust my budget,\u201d Charles Wait, professor emeritus in the\u00a0economics department<\/a>\u00a0at\u00a0Nelson Mandela University<\/a>, told Africa Check.<\/p>\n This is particularly important for people who can\u2019t increase their income when prices rise. \u201cThink of pensioners or those relying on social grants from the state.\u201d<\/p>\n A stable currency also helps businesses plan for the future with greater certainty. \u201cThere are less concerns about\u2026 the prices of inputs and outputs or the cost of expanding activities,\u201d Wait said. The same is true for the government when it draws up its medium-term budget of costs for the next three financial years.<\/p>\n \u201cOne complication in estimating costs in year three is the degree of inflation that is likely to occur between year one and two\u2026 for example, the budget presented to parliament in February 2019 was planned during 2018 but has to forecast until [the] end of March 2022.\u201d An unstable currency would complicate this further, Wait explained.<\/p>\n 3.\u00a0How does the bank function on a day to day basis?<\/strong><\/p>\n The bank also provides some\u00a0banking services<\/a>\u00a0to the central government and oversees the movement of currency between countries.<\/p>\n It is also the\u00a0banker for commercial banks<\/a>. It provides banks with cash when there are cash shortages, holds some of their cash reserves and supervises the South African banking system in general.<\/p>\n The Reserve Bank also issues banknotes and coins. Commercial banks then make these available to the public.<\/p>\n 4. Is the Reserve Bank independent?<\/strong><\/p>\n The bank enjoys a \u201cconsiderable degree of autonomy<\/a>\u201d, it says on its website. \u00a0Its mandate and independence are guaranteed by the\u00a0constitution<\/a>, which says the bank \u201cmust perform its functions independently and without fear, favour or prejudice\u201d.<\/p>\n The constitution is the\u00a0highest law<\/a>\u00a0of South Africa. Any changes to the constitution require support from two-thirds of the\u00a0National Assembly<\/a>\u00a0and six out of nine delegations from the\u00a0National Council of Provinces<\/a>.<\/p>\n So changing the founding structure of the Reserve Bank would not be easy. Some people, including the\u00a0reserve bank governor<\/a>, believe this is rightly so.<\/p>\n \u201cA central bank has normally got a monopoly in producing the country\u2019s banknotes and coins,\u201d Wait said. \u201cIt holds the key to the printing press. That key must be kept under a safe lock because if too much money is printed and put into circulation, we can get a situation where too much money chases too few goods.\u201d<\/p>\n This could result in hyperinflation, seen in Zimbabwe and, more recently, Venezuela.<\/p>\n This could especially be the case where a government, not understanding the risks of inflation and overspending, sees a country\u2019s central bank as a source of funding for its budget deficit.<\/p>\n A budget deficit is when a government expects to spend more money than it collects, according to a\u00a0guide<\/a>\u00a0to South African government budgets.<\/p>\n \u201cThe SARB is legally restricted in its ability to bailout the government in cases of the latter\u2019s budget deficits. When\u00a0[Tito] Mboweni<\/a>\u00a0was the president of the SARB he spoke about the need to tighten these screws,\u201d said Wait.<\/p>\n \u201cAt times of undesirably high levels of inflation, this independence is essential for the bank to be able to carry out its constitutional mandate of protecting the value of the currency.\u201d<\/p>\n 5.\u00a0Who owns the Reserve Bank?<\/strong><\/p>\n The bank is owned by about\u00a0750 private shareholders<\/a>\u00a0who together hold 2 million shares. Most shareholders are individuals but some shares belong to companies, trusts, provident funds and unions.<\/p>\n For example,\u00a0Anglo American<\/a>, a multinational mining company, and\u00a0Discovery<\/a>, a South African financial services group, own 10,000 shares each. The\u00a0National Library of South Africa<\/a>\u00a0owns 200 and the\u00a0Nelson Mandela Children\u2019s Fund<\/a>\u00a0owns 100.<\/p>\n During the March 2019 parliamentary question and answer session, Ramaphosa\u00a0expressed <\/a>concern about the bank\u2019s \u201cexternal shareholders who live in various countries in the world\u201d. The bank\u2019s latest\u00a0Shareholder Index<\/a>\u00a0report shows that about 11% of its 2 million shares are foreign-owned.<\/p>\n 6.\u00a0Who can buy shares?<\/strong><\/p>\n Anyone can buy shares over the counter. The bank regularly\u00a0publishes the price<\/a>\u00a0of its shares and the number of shares available.<\/p>\n As at 7 May 2019, shares were\u00a0trading<\/a>\u00a0at R8 each. There are currently 3,786 shares on offer to sell.<\/p>\n Investors may not buy more than 10,000 shares each. And a\u00a0prescribed maximum yearly dividend<\/a>\u00a0has been set at 10 cents per share. This means that even if an investor owns 10,000 shares, the most they can make in a year is R1,000.<\/p>\n 7.\u00a0What powers do shareholders have?<\/strong><\/p>\n Shareholders have the power to:<\/p>\n Shareholders do not<\/strong> have the power to:<\/p>\n These last three functions are carried out by the\u00a0Monetary Policy Committee<\/a>, the bank\u2019s governors and the South African President respectively.<\/p>\n 8.\u00a0What other assets does the Reserve Bank have?<\/strong><\/p>\n The bank is almost 100 years old. In that time it has built up a portfolio of assets that include shares, gold and foreign exchange reserves.<\/p>\n As at March 2019 these assets\u00a0totalled<\/a>\u00a0R793 billion.<\/p>\n 9.\u00a0What would \u2018nationalising\u2019 the Reserve Bank mean?<\/strong><\/p>\n Nationalising the bank would make the government its sole owner. According to Ramaphosa, this would \u201cconfirm<\/a>\u201d South Africa\u2019s sovereignty.<\/p>\n Prof Jannie Rossouw, head of the\u00a0school of economic and business sciences<\/a>\u00a0at\u00a0Wits University<\/a>, wrote\u00a0in August 2018<\/a>\u00a0that a change of ownership would not necessarily be a bad thing.<\/p>\n \u201cA large number of central banks have been nationalised since 1945,\u201d he told Africa Check. \u201cSo the world trend is in favour of nationalisation with shareholding becoming a rare exception.\u201d<\/p>\n (Disclosure: Jannie Rossouw was previously employed by the Reserve Bank and owns shares in the bank.)<\/i><\/p>\n There is\u00a0a misperception<\/a>\u00a0that ownership would give the government control over the bank\u2019s monetary policy. \u201cThe shareholding structure and whether we nationalise or not will have no impact whatsoever on the constitutional mandate of the bank,\u201d Rossouw said.<\/p>\n Prof Andr\u00e8 Roux, head of the Futures Studies programmes at the\u00a0University of Stellenbosch Business School<\/a>, agreed.<\/p>\n \u201cShareholders actually have very limited rights,\u201d he said. \u201cSo nationalising the reserve bank won\u2019t make much difference unless the Constitution is changed, which I think is very unlikely.\u201d<\/p>\n
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