South Africa needs a sensible debate about its Central Bank. Here’s a start..

Prof Vishnu Padayachee of University of the Witwatersrand and Bradley Bordiss PhD candidate at the same University argue for a more sensible debate on their central bank – SARB. Just recently, the Public Proctor asked the central bank to have a broader role leading to a lot of noise.

They say there are 2 mon pol camps:

Broadly, thinkers on monetary policy can be considered on a scale with “sound money” advocates on the one side, and those concerned that money and banking must serve the productive economy – let’s call them “serve-society” advocates – on the other.

We locate ourselves unambiguously on the “serve-society” side of the debate. We agree with William Lowndes who served in the British Treasury in 1695, who said that money supply must serve society. Thomas Attwood in the 19th Century, John Maynard Keynes, the trade union leader Ernest Bevin and Hyman P Minsky in 20th Century, concurred.

They say SARB has done quite well since inception:

Unlike Mkhwebane’s report, these economists, particularly Keynes and Minsky, understood that currency and money markets under capitalism have a nasty tendency to be unstable. That’s why the regulatory and lender of last resort function of the Reserve Bank is so vital. (When the operations of the inter-banking lending market cease to operate, the lender of last resort is the entity – usually a Central Bank – that has sufficient liquidity to lend to banks short of funds.)

The South African Reserve Bank has performed these roles moderately well for almost a century. The country hasn’t had a systemic banking crises since the formation of the Reserve Bank in 1921. Experts in the field Calomiris and Haber, 2004, find that South Africa is among the most stable top 13 banking systems in the world. The Reserve Bank should take credit for much of that.

That doesn’t mean that it’s beyond criticism which is why a serious debate is needed. The debate doesn’t need to rely on the ideas of fringe adventurers and crackpots. The country has a wealth of intellectual talent on monetary and central banking policy inside and outside its universities that straddle the ideological spectrum. The country’s public intellectuals in the unions and in civil society organisations have excellent ideas on central banking and monetary policy. Ordinary citizens should be drawn in too.

One thing is clear: things cannot remain as they are because so much is changing in the world of central banking and in economic life.

They say debate should be based on evidence and not just emotions:

After the release of the Public Protector’s report the Governor of the South African Reserve Bank, Lesetja Kganyago, offered the potential space to begin a serious debate about South African monetary policy aimed at creating a more inclusive and prosperous society and economy.

But, he warned, such a discussion would have to be based on “evidence and sound analysis”.

In our view ideas must come from across the ideological spectrum. And they must be debated in legitimate and properly structured forums. One place to begin the discussion would be Parliament’s Portfolio Committee on Finance.

Other structures – such as the Reserve Bank’s Monetary Policy Forums (as proposed by the governor) and forums led by business, labour and civil society organisations as well as universities – need to keep up the momentum.

There must be no place for defensive postures, arrogance or condescension. The debate must be guided by one overriding objective: to improve the quality of life of the many South Africans for whom the end of apartheid has brought no real material change? It must consider the impact of change on employment, investment and growth.

The authors don’t cover one aspect in the article. What is also interesting is that SARB is one of the few banks that remains a shareholder bank since 1921. If indeed its performance has been quite decent, did less government interference play a role? It is a curious case of a private institution playing a public role.


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