Every time the Monetary Policy Committee announces interest rate cuts, unions and some sectors of the population immediately jump up calling for the “nationalisation” of the Reserve Bank. One wonders if they do actually have a point. The recent appointment of Lesetja Kganyago as the Reserve Bank governor-designate has re-ignited the debate.
During my studies I remember being taught the difference between monetary and fiscal policy and how they complement each other. Monetary policy is basically the process by which the monetary authority of a country controls the supply of money, often targeting the interest rate for the purpose of promoting economic growth and stability. This is done by the Reserve Bank. Fiscal policy on the other hand is the use of government revenue collection (taxes, levies and duties) and expenditure to influence the economy. This is done by National Treasury. These aspects are illustrated in Chapter 13 of the Constitution. The South African Reserve Bank Act then expands on the mandate of the Reserve Bank. The mandate of the Reserve Bank from next year will also extend to overall responsibility for “prudential regulation” of the financial sector and for ensuring financial stability.
It is important to note that the Reserve Bank is constitutionally guaranteed as an independent institution, which must exercise its duties without fear, favour or prejudice. Such a constitutional guarantee is similar to that of Chapter 9 institutions. The Presidency just needs to ensure that he appoints the governor and his or her deputies and the minister of finance may be consulted on national financial matters. Many quarters have stated that the president’s power to appoint top leadership (four individuals) at the Reserve Bank means that the bank is in the state’s hands anyway. But it is important to note that the Reserve Bank has 14 directors who also play a big role in the decision-making process of the bank.
The main point of contention in respect of the mandate of the Reserve Bank is whether it should continue pursuing inflation targeting or if it should try and shift towards “employment targeting”. With unemployment spiralling out of control, many have asked for an “all hands on deck” approach to address unemployment and also economic growth. These are seen as the panaceas of addressing poverty and inequality. We need to ask ourselves: “What does the economy need to come out of its current rut?” The economy does seem to be contracting with recession being missed by a whisker earlier this year. What happened during the Thabo Mbeki era when the president insisted on the slashing of interest rates among other measures in order to stimulate the economy? Obviously the global economy has been ailing since 2008 and as such the conditions are not the same but it is something to ponder about.
Numsa has been a strong critic of the Reserve Bank, with its argument based on what it terms the “neoliberal macro-economic policies”, which have ruined the manufacturing sectors and led to massive shedding of jobs, and also attacking inflation targeting. Numsa wants the Reserve Bank to focus more on the needs of the developmental state. One needs to ask if these neoliberal policies have been different from those pushed by the government since 1994, the Mbeki era being the one that came in for the most criticism in that regard.
Critics of the nationalisation concept worry about the government having control over the printing of money, reminiscent of the Weimar Republic days of old Germany fuelling inflation by printing money. It is a concern that is also derived from other developing countries that have pumped in more banknotes in an effort to appease the populace. Whether the government would go down this path seems implausible at this stage. The constitutional guarantee and mandate remains the strongest case against the nationalisation of the Reserve Bank at this stage. This is because the Reserve Bank has executed its mandate in the best possible way despite global issues such as the current state of the economy, currency instability and the 2008 recession.
The symbiotic relationship between the National Treasury, Reserve Bank and Financial and Fiscal Commission needs to be strengthened and become more complimentary to save the economy from further stagnant economic growth. Let’s not consider nationalisation just yet. Maybe in future.