{"id":130304,"date":"2019-01-24T10:47:41","date_gmt":"2019-01-24T08:47:41","guid":{"rendered":"https:\/\/www.myza.co.za\/explainer-south-africas-central-bank-ownership-mandate-and-independence-the-conversation\/"},"modified":"2019-01-24T10:47:41","modified_gmt":"2019-01-24T08:47:41","slug":"explainer-south-africas-central-bank-ownership-mandate-and-independence-the-conversation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/explainer-south-africas-central-bank-ownership-mandate-and-independence-the-conversation\/","title":{"rendered":"Explainer: South Africa’s central bank — ownership, mandate and independence | The Conversation"},"content":{"rendered":"

Explainer: South Africa’s central bank — ownership, mandate and independence<\/a>: <\/p>\n

Lesetja Kganyago, governor of South Africa's central bank. <\/span> EPA-EFE\/Pete Marovich<\/span><\/span><\/figcaption><\/figure>\n

In recent months, various debates about the South African Reserve Bank have focused broadly on three aspects \u2013 its shareholding, its mandate and its independence.<\/p>\n

The three debates are somewhat convoluted. They are indeed three different issues, but they are interlinked. <\/p>\n

Let\u2019s turn to the issue of ownership first. <\/p>\n

The South African Reserve Bank is one of only eight central banks in the world with private shareholders. The others are in Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey.<\/p>\n

The debate about shareholding in South Africa\u2019s Reserve Bank centres around the issue of nationalisation. Some political players, such as the third largest party \u2013 the Economic Freedom Fighters \u2013 are calling for the ownership of the Bank to be transferred from current private shareholders to the South African government and has tabled a bill in Parliament to achieve this objective.<\/p>\n

The issue is very charged. But it\u2019s also confused and not very well understood. There\u2019s an assumption that a change of ownership would automatically mean a change in the role the Bank plays. This isn\u2019t the case because in fact the Bank\u2019s shareholders play no role in its mandate. In that sense it doesn\u2019t matter who the shareholders are. Because they can\u2019t affect its mandate, nationalisation won\u2019t affect the independence of the central bank. <\/p>\n

But there are other ways in which the Bank\u2019s ability to do its job can be undermined. This is where the Bank\u2019s primary mandate comes in.<\/p>\n

The mandate issue<\/h2>\n

The mandate of South Africa\u2019s central bank is set out in the Constitution, which says:<\/p>\n

\n

The primary objective of the Bank shall be to protect the value of the currency of the Republic of South Africa in the interest of balanced and sustainable economic growth in the Republic.<\/p>\n<\/blockquote>\n

The Bank also adheres to an inflation target which was put in place in 2000. This requires it to keep inflation within a band of 3% to 6%. The Bank uses monetary policy and interest rate decisions to achieve this objective. In short, when the inflationary trend declines, the interest rate declines and when the inflationary trend increases, the interest rate increases. <\/p>\n

The issue of the Bank\u2019s focus on keeping inflation within this band \u2013 and the fact that its mandate sets out clearly that managing inflation is it\u2019s core job \u2013 is hotly contested. <\/p>\n

Those on the left of the political spectrum, including the country\u2019s largest trade union federation, argue that the South African Reserve Bank shouldn\u2019t focus primarily on inflation. Instead, they say, it should also be taking account of economic growth as well as the employment rate in the country. <\/p>\n

The Bank\u2019s response has been that its current mandate is broad enough because it says quite clearly that, while managing inflation, it must do so \u201cin the interest of balanced and sustainable economic growth in the Republic\u201d.<\/p>\n

For those like myself who oppose a broader mandate, the issue is quite simple: giving the Bank a broader mandate raises the danger that the Bank will take its eye off inflation because it\u2019s having to concentrate on other issues. This, in turn, could lead to rampant inflation.<\/p>\n

The Bank\u2019s mandate is crucial in another respect. The SA Reserve Bank\u2019s ability to pursue its mandate without interference from government is how its independence is measured. <\/p>\n

South Africa\u2019s central bank has acted on the whim of politicians before. It didn\u2019t end well. <\/p>\n

How political interference can hurt<\/h2>\n

In the 1980s inflation rose dramatically, resulting in the country suffering its highest inflation rates ever: on average about 15% per year for the decade.<\/p>\n

Despite the fact that rising prices called for the Bank to act by raising interest rates, it failed to do so on instructions of the government. Inflation wreaked havoc on the earnings of ordinary South Africans, as well as on the value of people\u2019s pensions. <\/p>\n

The government\u2019s interference was dramatically brought to light ahead of a by-election in 1984 in a Johannesburg suburb called Primrose. Just prior to the by-election the government instructed the South African Reserve Bank to drop the interest rate. This subsequently became known as the Primrose Prime incident. <\/p>\n

Where the focus should be<\/h2>\n

The debates swirling around the central bank have created uncertainty. This is despite reassurances from South African President Cyril Ramaphosa. <\/p>\n

The President needs to do more: he also needs to establish certainty about the executive management of the South African Reserve Bank. <\/p>\n

An executive vacancy at the central bank, created by the resignation of one of the Deputy Governors, Francois Groepe, must be filled as a matter of urgency. And the President should make clear his intention to reappoint the Governor, Lesetja Kganyago, and the Deputy Governor, Daniel Mminele, whose terms expire this year. <\/p>\n

These appointments are under the purview of the President. The SA Reserve Bank Act stipulates that the President must fill executive positions after consultation with the Minister of Finance and the Bank\u2019s board. <\/p>\n

South Africa needs stability at the central bank to ensure a growth trajectory for the country. The President should get the process of filling the vacancy and providing certainty about the future of Kganyago and Mminele underway sooner rather than later.<\/p>\n

\"The <\/p>\n

Jannie Rossouw was previously employed by the SA Reserve Bank and owns shares in the central bank. He is an NRF C-rated researcher and previously received research funding from the NRF.<\/span><\/em><\/p>\n

Source:<\/strong> The Conversation \u2013 Articles (AFRICA)<\/a><\/small>
\n<\/p>\n

Read more on The Conversation<\/a>.<\/p>\n

Join the fun:<\/strong> Add Your event<\/a> | Submit a Press Release<\/a> | Add your listing<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Explainer: South Africa’s central bank — ownership, mandate and independence: Lesetja Kganyago, governor of South Africa's central bank. EPA-EFE\/Pete Marovich In recent months, various debates about the South African Reserve Bank have focused broadly on three aspects \u2013 its shareholding, its mandate and its independence. The three debates are somewhat convoluted. They are indeed three […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[4584],"tags":[4635,1850,4543,8890,10557,11793,22227,5328,3576],"class_list":{"0":"post-130304","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-africa-news-2","7":"tag-africas","8":"tag-bank","9":"tag-central","10":"tag-conversation","11":"tag-explainer","12":"tag-independence","13":"tag-mandate","14":"tag-ownership","15":"tag-south","16":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/130304","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=130304"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/130304\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=130304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=130304"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=130304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}