Former Reserve Bank governor Tito Mboweni wrote an account on Facebook on Wednesday night of the importance of the Reserve Bank and why the attacks on it are so dangerous.
He said he thought it would be “prudent” to help the “ignorant and uninformed”.
He finished with the advice that, before you shout “crazy, ignorant things” about the bank, take the time to understand what it is. He said this was because leadership at top level should not “look so stupid”.
Below is his post in full:
1) Against the background of the most recent attacks on the South African Reserve Bank (SARB), I thought it prudent to say a few words about the Bank. This might help the ignorant and uniformed who rush to attack without the requisite knowledge of the SARB.
2) There is a vast amount of published and unpublished literature on the Bank which I rely on. For example, the legendary book by MH De Kock: Central Banking, 1956, which was reprinted in many editions and also one by his son, Gerharld De Kock, The History of the South African Reserve Bank. And also one by Stephen Gelb: The Origins of the South African Reserve Bank (1989). Lastly, Professor Jannie Rossouw: The South African Reserve Bank, History, Functions and Institutional Structure ( 2009).
3) This posting is not an academic treatise and thus I wish not to be quoting any book in extenso. To strict academicians like the Van Onsellens, I might be accused of “stealing” other people’s words. So please forgive me for that.
4) The SARB is a creature of law. The Currency and Banking Act, 1920, Act No. 31, 1920. The first bank to be established in South Africa wa the Lombaard Bank in Cape Town on April 3, 1793. It was owned by the Cape Colonial government. Then there were a number of banks established thereafter. Many of them failed. The SA Reserve Bank opened its doors for business in 1921. Do yourself a favor and visit the ABSA Banking Museum in Johannesburg to learn about banking in South Africa.
5) Following the currency crisis of 1918/1919, a decision was made to establish a CENTRAL BANK. Remember that before that, private banks could issue currency backed up by GOLD. In the ensuing negotiations between the government and the private banks, the following arrangement was reached:
5.1) the private banks would stop issuing currency,
5.2) a common central bank would be established as the central authority to issue currency and regulate private banks,
5.3) there would be private shareholders and the government would reserve the power to appoint the Governor and three deputies Governor plus four members to the Board of Directors. Private shareholders would appoint seven other directors to balance the representation so that none had a majority in decision making but the Givernor would have a deciding vote should a deadlock arise.
5.4) no-one was to have more than ten thousand shares. ( Invidentally, I own ten thousand shares in the SARB and receive a fixed dividend, taxable, of R1000.00 a year). Not much!
6) In today’s world, the SARB follows all the most recent corporate governance rules and procedures.
7) What does the South African Reserve Bank actually do? What are its ‘Purposes and Functions’?
7.1) formulates monetary policy! set the target bank interest rate. The decisions are taken by the Monetary Policy Committee (MPC). The current mandate, given by the government, is to ensure that inflation, the Consumer Price Index (CPI) stays within the 6-3% range. This is called flexible inflation targeting.
7.2) management of the South African money and banking system. Issues banking licenses ( which is what Minister Zwane appearently does not like! Hard luck mate!), regulates the banks ( any deposit taking institution). The regulation of banks is the task of the Registrar of Banks in terms of the Bank’s Act.
7.3) Banker to the government,
7.4) Banker to private banks.
7.5) Issuer of currency, the Rand and Coins. In fulfillment of this function, the SARB has two subsidiary companies: The SA Mint which mints the coins and the SA BankNote Company that prints the paper money. These companies operate under the strict corporate governance rules and international best practice and standards.
7.6) management of the national payment and settlement system
7.7) management of financial surveillance.
8) In short, before you open your mouth and shout crazy, ignorant things about the South African Reserve Bank, please read this and visit the SARB website for more literature. The ANC has long ago resolved these issues. Read ANC literature as well and the NEC Economic Transformation Committee (ETC) could assist. No leadership must act and look so stupid! At that level, we expect better!