Attacks on the mandate of the Reserve Bank demonstrate an acute lack of understanding of how the Bank, and monetary policy generally, work.
Of even greater concern, those spearheading the attacks either don’t realise that their views are misinformed or simply don’t care, as a quick glance at my Twitter timeline suggests.
Opinions touted on social media, including by some within the governing alliance, would have you believe that SA’s low-growth malaise is somehow the fault of the Bank.
While the Bank’s constitutional mandate is indeed to “protect the value of the currency in the interest of balanced and sustainable economic growth”, to think that it can somehow manufacture that growth is to attribute to the Bank powers it simply does not have.
Monetary policy, the purview of the Bank, is powerless to tackle the real inhibitors to growth and job creation, such as corruption and poor educational outcomes.
The best thing the Bank can and does do for the economy is target inflation, which in turn maintains price stability. It does this by adjusting the repo rate, which affects interest rates in the economy.
So when inflation spikes or is expected to rise, evidenced by an increase in the price of goods and services, the Bank may opt to increase interest rates to keep prices stable.
Price stability reduces uncertainty in the economy (since the price of things is not changing on a daily basis), providing a favourable environment for investment, growth and job creation.
Keeping inflation low also protects purchasing power and keeps interest rates low, which means people are able to afford not only basic goods, but also larger purchases such as houses. No country with runaway inflation has enjoyed socioeconomic transformation.
So when the ANC’s election manifesto announces that monetary policy should align with the objectives of “the second phase of transition” and take into account, other than price stability, “employment creation and economic growth”, one is left wondering exactly what the governing party envisions. Monetary policy has a limited effect on these issues.
Nationalising the Bank, which is already accountable to the government, by buying out its 600-odd private shareholders would do nothing to influence how it implements monetary policy.
That the private shareholders still exist is a function of how central banks were established historically. When the constitution was drafted the government elected to keep them, fearful that the global investment community might perceive changes to the Bank’s shareholding as a change in monetary policy.
They have zero influence on monetary policy. The number of shares they hold and the annual dividends they receive are capped so that no related parties can receive more than R1,000 per year.
On the other hand, the Bank’s independence is critical to monetary policy, which is why President Cyril Ramaphosa has been at pains to assure investors that it will remain independent.
Still, the rhetoric surrounding the Bank signals the “post-truth” trend in SA’s political discourse, where objective facts are optional and debate is framed by appeals to emotion.
True, politicians have used sentiment to win votes for decades. But their ability to spread their ill-informed opinions — or simply lie outright — and in so doing manipulate voters, has been immeasurably bolstered by digital media. And in a world of social media echo chambers, he who shouts loudest wins. Biases and prejudices are reinforced rather than challenged.
Fair, independent and authoritative news coverage is drowned out by the torrent of low-quality information flowing from digital platforms.
Consider that in the final three months of the 2016 US presidential election the top 20 fake election-related articles on Facebook generated more readership than the New York Times, Washington Post and CBS News. All but three were anti-Clinton or pro-Trump, according to Buzzfeed News.
One such article was from a now defunct site claiming that Pope Francis had endorsed Donald Trump’s presidential candidacy. The story was shared 1-million times.
Post-truth politics should worry us all. For if the strength of a democracy relies on the ability of its citizens to make informed choices then democracies, including our own, are in serious trouble.
• Ziady writes from Cambridge in the UK
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