The government has rejected the SA Reserve Bank Amendment Bill, which could allow the Bank to be fully owned by the state, saying its impact on the embattled economy, investment or fiscus has not been assessed.
There were also concerns about changing the mandate of the Bank and political interference in monetary policy.
National Treasury deputy director-general for tax and financial sector policy Christopher Axelson told the standing committee on finance during a public hearing to amend the law governing the central bank that the government had fundamental objections to the bill.
The objections were based on constitutionality; potential impact on future investment, the economy and jobs; lack of detail on funding and cost implications; and potential conflict with other legislation.
The bill, introduced by EFF leader Julius Malema in 2018, also didn’t align with the current policy objectives and funding priorities of government, he said.
The bill is aimed at ensuring that all the central bank’s 2-million shares are owned by the state, in line with central banks of most countries. It seeks to change the shareholding structure by making the state the sole shareholder with the rights of the shareholder to be exercised by the finance minister.
“While the bill doesn’t directly change the mandate and independence of the [Bank], there is no comfort to current and future investors and savers that this is not the first step towards changing the mandate of the [Bank],” Axelson said.
“The mere perception that this may happen sometime in the future sends a powerful negative signal to investors on how monetary policy will function in the future, on the value of the currency.”
Axelson pointed out tat the bill was silent on how to fund the purchase of the Reserve Bank shares, “and assumes they can simply be appropriated. It does not take into account bilateral investment treaties, and rights of foreign shareholders”. Of the Bank’s 2-million shares, 12.65% are owned by foreign nationals.
“Full ownership may be desirable, but it will potentially have huge cost implications and require significant trade-offs, including negative impact on investment and on economic growth,” Axelson said.
“SA is stuck in a low growth trap, with great fiscal challenges to stabilise its debt, so why risk slowing growth even more? Governance arrangements will be significantly weaker and may negatively impact the independence of the [Bank]. Government does not support the bill.”
Cosatu’s Tony Ehrenreich said the labour federation welcomed and supported the bill as the Reserve Bank’s current ownership structure was an “unjustifiable anomaly and must be rectified”. “Ownership of [the Bank] must only be vested with the state, in line with international norms,” he said, adding that for years the Bank had maintained an excessively conservative stance regarding the repo rate.
The central bank had not maintained a close enough eye on the conduct of banks nor illicit financial outflows, he said, stressing this had come at the expense of workers and the economy as banks had been allowed to “fleece consumers with excessive interest rates, collusion, currency manipulation and flagrant abuses of the National Credit Act”. “Cosatu welcomes the bill and supports its passage,” Ehrenreich said.
Gabriel Crouse from the SA Institute of Race Relations said the mere adoption of the bill would have immediate and substantial economic costs. Nationalisation of the Bank would further undermine property rights and erode investor confidence in the country, he said.
“The adoption of the bill is also likely to trigger capital flight, as the National Treasury has cautioned. This is the exact opposite of what the country needs. If this occurs, SA’s already limited levels of fixed investment will fall further. This will inevitably reduce economic growth and leave some 12-million unemployed people with little prospect of ever finding jobs or earning their own living,” Crouse said.
However, EFF MP Sinawo Thambo questioned what purpose the independence of the Bank served, arguing that the capital flight and loss of investor confidence cards were laws “pulled out of the pocket” whenever progressive legislation was brought up in the country. The fearmongering, he said, stifled necessary change in how “we guide economic policy in this country”.
Civil rights organisation Free SA executive director Paul Maritz said: “The proposal to centralise and nationalise the [Reserve Bank] comes at a sensitive time for SA’s economy. A nationalised [Bank] might not instantly lose its independence — but the perception and the potential for interference would hang over it, diluting the hard-earned confidence it currently enjoys.”
Maritz admitted that the country “certainly faces developmental and transformative imperatives — unemployment, inequality and poverty remain urgent challenges. But dismantling the safeguards on monetary policy is not a solution to these problems.”
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