Policy radar: SA Reserve Bank still in the sights of nationalisation?


Julius Malema’s bill aimed at ‘nationalising’ the SA Reserve Bank was recently revived. This bill expired in May 2019 but was submitted for reconsideration by the national assembly in October 2019. Read the bill on the PMG’s web page.

The bill mainly envisions stripping the SARB’s private shareholders of their shareholding and making the state the sole shareholder. The concerning thing about this bill is that it may accelerate a process of ‘political capture’ of the SARB, as economist Russell Lamberti terms it.

Lamberti frequently explains the danger were the SARB to change from being a so-called ‘banker’s central bank’ – which currently still is the case, more or less – to a politicians’ central bank that is misused for narrow political concerns.

The SARB board

To date, the SARB still has private shareholders that have a certain amount of say over the bank’s board of directors. Such shareholders have nominal influence on the SARB regarding the appointment of board members.

Before 2010, the executive authority appointed 50% of the bank’s board members, and private shareholders 50%.

While the private shareholders do not directly influence the Bank’s monetary policy, they do influence the appointment of directors, who eventually decide on the policy.

A private shareholder usually obtained one vote per 200 shares, and there are two million shares.

Briefly, monetary policy focuses on managing a country’s currency. Monetary authorities, like a central bank, determine for example repo rates and the money reserves that commercial banks should have.

This policy ultimately influences the number of rands in the economy against other goods and services. Simply put, the policy determines how much you can buy with a rand.

The way the SARB board is formed was already modified in 2010. Private shareholders’ say over the appointment of directors was weakened by a 2010 amendment act. Since then, private shareholders may only vote on seven candidates that have been confirmed by an official panel of the bank.

The panel that was created by the 2010 amendment act clearly leans towards stronger influence from reigning politicians, or, at least, away from the even moderate say of private shareholders.

The panel referred to consists of the president of the SARB (as chairman, elected by the executive authority) and a former judge and one other person, both appointed by the minister of finances. The remaining three are then appointed by Nedlac. Board members who are nominated by private shareholders to be elected first need to be confirmed by this panel to be eligible for election.

Malema’s bill would mean that private shareholders would no longer have any say over the appointment of directors. That would leave the Bank’s board purely in the hands of the ANC majority government.

We don’t need to spend much time pointing out the risks that are run when a central bank is captured for narrow political ends. Most of us are familiar with Zimbabwe’s hyperinflation of the late 2000s. The central bank of Zimbabwe simply hugely debased and ultimately destroyed the country’s currency.

A political SARB wouldn’t need to set off hyperinflation to do damage. It could simply expand the money supply (‘print’ more rands, as it were) to benefit those closest to the centre of political power, those closest to the ‘newly printed’ money. This kind of preferential treatment would leave the rest of the country with a weaker currency that can buy less for each rand.

Consequently, we believe any possible steps that could point to political capture of the SARB are worrisome.

We could argue about the actual value of private shareholders in central banks, and whether the hedge created by the bank’s so-called ‘independent mandate’ isn’t sufficient after all. Under the leadership of the current president of the SARB, Lesetja Kganyago, a more conservative approach to monetary policy has been followed, so much so that many parties have thus far described the policy as too tight.

Practically speaking, it’s hard to believe that proposals such as Malema’s bill do not aim to increase political influence over the bank. Given the possible hazards and far-reaching consequences of central bank misuse, we need to put developments at the SARB on the Policy Radar and keep a close eye on them.

Watch Russell Lamberti’s talk on the SARB at a recent function of the Free Market Foundation (FMF).