In this land of quarrels that is South Africa, we were yet again thrust into a furore about the ownership of the South African Reserve Bank and its mandate following the Public Protector's report, bearing the hallmarks of a Gupta hatchet job, recommending that Absa pays back the money and that Parliament amends the Constitution to broaden the mandate of the Reserve Bank to ensure that the "socio-economic wellbeing of the citizens is protected". Whatever this means. This poorly reasoned report by the Public Protector has ignited an old debate about the mandate and the ownership of the Reserve Bank with the likes of Zwelinzima Vavi jumping on the bandwagon calling for the nationalisation of the bank. But this is a storm in a teacup.
The Reserve Bank derives its mandate from section 224 of the Constitution and the South African Reserve Bank Act of 1989. In terms of this Act, the Reserve Bank has issued share capital with each shareholder holding no more than 10,000 ordinary shares which are traded over the counter. Shareholders are entitled to dividends and a vote at shareholder's meetings. The populist chorus is that the Reserve Bank must be nationalised so that it can be accountable to, and serve the interests of, South African people rather than make profits for shareholders, most of whom are foreigners. But is there substance in these arguments?
The mandate of the Reserve Bank is to protect the Rand in the interest of balanced and sustainable growth. It has no mandate or duty to make profits for its shareholders. Even if it made losses there is virtually nothing the shareholders can do because profitability is not part of its mandate. Its functions include making banknotes, coins, accepting deposits, granting loans, buying precious metals and acquiring shares in other companies. There is no whisper about maximising profits for shareholders. The effect of private shareholding on the Reserve Bank is objectively illusory.
The affairs of the bank are run by a Board of Directors, half of which, including the Governor, are appointed by the president in consultation with the Minister. The Minister, not shareholders, has wide powers to make regulations dealing with the conditions of service for the Directors, meetings of the Board, meetings of shareholders and other matters. Ordinarily, the shareholders of a company can vote to place the company in liquidation. However, in terms of section 38 of the Act, only Parliament may decide to place the Reserve Bank in liquidation by means of an Act of Parliament.
In terms of the Act, the Bank reports annually to the Treasury on its implementation of monetary policy and its financial affairs. Add to this the fact that it also accounts to Parliament just like SARS and other entities do. Although the shareholders are entitled to dividends, this is limited by law while a portion of those profits must be allocated to the bank's reserve fund and the rest paid over to the South African government. But why is there such a furore about the private shareholding at the Reserve Bank when in substance it is effectively owned by South African people through their government? Our maharishis relish placing form above substance.
The word "shareholder" alone baits them to run amok in an ideological frenzy in which they renounce any reliance on facts and rational arguments. We are also told by our maharishis that the mandate of the Reserve Bank must be broadened in the light of our high levels of unemployment and poverty instead of a narrow focus on protecting the currency through the "blunt instrument" of inflation targeting. Listening to these wise men, you could be convinced that if the bank lowered interest rates to near-zero levels we could create millions of jobs and lift millions of poor people out of poverty. How fanciful. They want to convince us that we could empower the poor if we set off on a road towards printing one billion banknotes like Zimbabwe.
Meddling with the Reserve Bank in order to deal with our economic crisis will be a wild goose chase ending in predictable disaster.
These are the same wise men that opposed and practically killed the youth wage subsidy meant to create jobs for unemployed youths. These are the same advocates of the minimum wage law which keeps inexperienced youths out of work instead of letting them get lower salaries. Our wise men want to convince us that we could be better off if the Reserve Bank broadened its focus to include unemployment and poverty. But the reason our government fails on the essential functions of a government is because it is doing many things it should not be doing such as running businesses like the SABC, SAA, Eskom, SAPO – all of which are circling the drain and only succeeding at syphoning public money through bailouts and corruption.
Meanwhile, there is runaway crime in the country such that by the time you read this blog I could be murdered or stabbed by one robber for giving all my money to the first robber. Our maharishis suffer from the old Socialist disease of thinking that a government or government institutions can solve problems when they are omnipotent, everywhere doing everything including preventing consenting adults from eating snakes in church. Today schools accept goats as payment for school fees in Zimbabwe because the currency lost all its value. You can hardly grow an economy by destroying your currency.
The Reserve Bank is not an obstacle to development in this country. Our problem is bad leaders with bad policies. Meddling with the Reserve Bank in order to deal with our economic crisis will be a wild goose chase ending in predictable disaster.