Source: Damir Spanic (Unsplash)
Established in 1921, the South African Reserve Bank (SARB) is the central bank of the Republic of South Africa. The bank’s mandate places it as the authority overseeing the country’s sustainable economic growth; a mandate which it must be allowed to pursue “independently and without fear, favour or prejudice”. The SARB is one of only a handful of central or reserve banks in the world which is privately owned; alongside those of countries such as Belgium, Greece, Italy and Switzerland. The issue of the bank’s ownership has become increasingly contentious in recent years as the ruling African National Congress (ANC) and another prominent political party, the Economic Freedom Fighters (EFF), have raised calls for the SARB to be nationalised. In a global economic system where the majority of central banks are owned and operated by the government, the SARB is something of an anomaly; but as the old adage suggests: If it isn’t broken, why fix it?
If one were to picture the economy of a country as a human body, its heart and circulatory system would be the nation’s central bank. Central banks are responsible for the issuing and the circulation of money in an economy, in an effort to keep the “body” healthy and functioning at its optimal capacity; these are the institutions which keep economies from collapsing in on themselves. The bank’s legal monopoly on the issuing of banknotes and cash, plays a vital role in the economy of our country which means the nationalisation debate is not something which can be taken lightly. The history of the concept of a national bank can largely be traced back to one of the American Founding Father, Alexander Hamilton. In 1781 he wrote, “in a National Bank alone we can find the ingredients to constitute a wholesome, solid, and beneficial paper credit”. Hamilton designed the Bank of the United States to sit at the very centre of the American financial system; the influence of this policy has since spread to an increasing proportion of the globe.
The ANC was presented with a once-off opportunity to nationalise the Reserve Bank during the transition from Apartheid to democracy but opted to keep the bank independently owned. This decision seems to be coming back to haunt them as they wade through the muddy waters of the nationalisation debate. There seems to be widespread agreement that the central bank’s independence is of the utmost importance and that the most successful banks are those with the least political involvement.
The draft bill proposed to parliament by the EFF would see the state becoming the sole holder of shares in the reserve bank, a stark contrast to the current ownership structure where over 600 shareholders, a combination of individuals, companies and commercial banks, stake a claim to the bank. The current ownership structure does allow for government to purchase shares in the bank although they are bound to the same stipulations as any other shareholder (they are allowed to purchase a maximum of 10 000 shares which translates to a maximum of 200 votes). The Minister of Finance would act as a shareholder in the bank and exercise the rights associated with his or her position. Finally, the draft bill places the responsibility of appointing the Governor, Deputy Governor and all other directors of the bank upon the President (in consultation with the Minister of Finance). Fuelled by the perception that the shareholders hold control over the bank and the belief that the Reserve Bank should belong to the people of South Africa, the ANC has begun pursuing the nationalisation of the bank in earnest. There are factions within the ruling party which view the SARB as an obstacle to their plans of radical transformation within the financial services sector.
The overarching argument of the ANC seems to be that nationalisation is necessary to bring the SARB in line with how the majority of other central banks are operating. Advocates point to countries like New Zealand and Austria as examples; the first and most recent countries to nationalise their central banks respectively. What these individuals seem to overlook is the stark contrast which exists between the economy of South Africa and the economies of those states which have successfully nationalised their reserve banks. One cannot ignore the differences between the specialised financial sector of a European nation like Austria and the emerging market economy of South Africa; especially when it comes to a decision which would have severe economic ramifications.
Many of the arguments against nationalisation boil down to issues of government accountability, examples from recent history, and the transparency of the current reserve bank structure and governance. The possibility exists that, once the government becomes the sole shareholder the reserve bank would be reduced to a sort of personal piggy bank for those with access to its coffers. South Africa’s ever-present threat of corruption undermines any potential advantages nationalisation could have to offer; evidence of the government’s lack of accountability has been recently demonstrated in the multiple scandals surrounding misappropriation of COVID-19 relief funds. The hyperinflation crises in our northern neighbour of Zimbabwe and South American ally Venezuela should be enough to caution South Africa against tinkering with a reserve bank which is working well. The SARB’s current private ownership structure allows for a large degree of transparency to the extent that it ranks as one of the best central banks in the world for its transparency and accountability mechanisms. Current shareholders are permitted to ask questions and help hold the bank’s management and board to account. Nationalising the SARB and leaving it in the control of an ill-equipped government is likely to shatter confidence in an institution which has previously been known to be above politics.
Within the discipline of International Political Economy (IPE), we have been taught to always consider Cui Bono – who benefits? An objective approach to nationalisation must take this critical question into consideration. The decision of whether or not to nationalise should rest on certain tests: Will it increase citizen’s power over their own fates? Does nationalisation enable the entity to perform its service to the nation better and more economically? Does it lead to a more equal standard of living? The answers to these questions should form the basis of the decision to nationalise or not, because the answers to these questions are indicative of whether or not nationalisation would best serve the people of South Africa.
The dual challenge in the political economy is to create wealth and then distribute this wealth productively, equitably and fairly. Having intimate knowledge of South African governance in recent years, citizens of this country cannot be certain that the government is capable of successfully mitigating this challenge and until it is guaranteed that a government-owned reserve bank is competent enough to distribute the wealth, the question of nationalisation should be taken off the table.
Kendra Connock is a third-year student at the University of Pretoria, studying International Relations and Criminology. Her areas of interest are where these two seemingly divergent fields meet, specifically issues of international illicit trade and crimes of a political and economic nature.