Good news about the South African Reserve Bank

Finance Minister Enoch Godongwana stated that the government has no plans to nationalise the South African Reserve Bank (SARB).

Over the last fifteen years, some politicians have called for nationalising the Reserve Bank or, at the very least, changing its mandate to stimulate the local economy.

However, such changes would severely impact investor confidence in South Africa and result in foreigners losing trust in the rand.

When these calls started to make headlines in 2010, the SA Reserve Bank explained its mandate and the importance of independence.

The primary objective of the SARB, as outlined in the SARB Act and the Constitution, is to preserve the value of the currency in the interest of economic growth.

The SA Reserve Bank achieves this mandate through the conduct of monetary policy, which includes setting interest rates.

Since monetary policy issues and the economy affect society as a whole, central banks worldwide are regarded as public entities that fulfil public interest roles.

In practice, the pursuit of this role is not synonymous with the realisation of profits. It conducts its activities in the public interest only, without regard to profit maximisation.

It has a unitary board consisting of a governor, three deputy governors, and three other directors, all of whom are appointed by the President. Additionally, it has seven other directors appointed by the shareholders.

Its independence is entrenched in the constitution, and no one owns it. Control of the SARB is exercised between its shareholders and the government.

The SARB Act does not grant shareholders any authority to remove directors. They are also unable to amend or change the Bank’s constitution.

Individual shareholders are prevented from exercising undue influence over the control of the SARB by virtue of the prescription.

No shareholder may hold more than 10,000 shares in the Bank. They also receive a fixed dividend at a rate of ten per cent per annum on the value of their shares held.

Voting is restricted to one vote for every 200 shares held, with a maximum of 50 votes per individual shareholder.

The concept of shareholding in the Bank is based exclusively on principles of shared community representation and participation in the oversight of the SARB.

No plans to nationalise the South African Reserve Bank

Minister Godongwana told Parliament that the government has no plans to nationalise the South African Reserve Bank.

He explained that 100% ownership of the SA Reserve Bank by the State would be in line with most countries and jurisdictions across the world.

However, the benefit that would be derived from nationalising the SA Reserve Bank needs to be balanced against the likely large fiscal cost that would accompany it.

The costs would include compensation in terms of both section 25 of the Constitution and existing bilateral investment treaties.

Yet the benefits of 100% ownership of the SA Reserve Bank are minimal, as private shareholders are currently restricted to playing a governance role only.

“They play no role in determining monetary, prudential, regulatory or any other policy,” Godongwana told parliament.

“Policy issues are the sole responsibility of the Governor and Deputy Governors of the SA Reserve Bank, all of whom are appointed by the President.”

The minister stated that it was crucial to ensure the SARB is permitted to independently fulfil its constitutionally enshrined mandate of preserving the value of the currency.

“Its additional objective of protecting and maintaining financial stability as envisaged in the Financial Sector Regulation Act,” he said.