Waving a magical ‘quantity easing’ wand won’t solve the problem

COMMENT

The national executive committee (NEC) of the ANC, in the person of secretary general Ace Magashule, emerged from its June 1 to 3 lekgotla this week to say, among other things, that “the ANC government considers constituting a task team to explore quantity easing measures to address intergovernmental debts to make funds available for developmental purposes”.

“These measures should consider inflationary impact on the currency and the poor and all must be done to cushion them. This is consistent practice by developed countries to save their economies.

READ MORE: South Africa is ‘equipped’ to handle quantitative easing, says Reserve Bank

“This will go a long way in dealing decisively with the triple challenges of unemployment, poverty and inequality.”

Quantitative (not quantity) easing (QE) has been extensively used in some developed economies since the 2008 financial meltdown, with central banks monetising assets such as government bonds and advancing funds in exchange for these bonds, to put liquidity into the financial system to encourage banks to lend and promote growth. But having transferred trillions of assets from the financial sector to the balance sheets of central banks, QE has, at best, had mixed results, inflating equity prices and exacerbating the divide between the haves and have-nots.

READ MORE: Without real leadership, we face financial disaster

Magashule’s statement, that the “ANC NEC lekgotla agreed to expand the mandate of the South African Reserve Bank beyond price stability to include growth and employment”, caused Finance Minister Tito Mboweni to put down his cooking utensils and launch a spirited defence of the independence of the central bank. And the ANC’s economics transformation head, Enoch Godongwana, on Tuesday night said the ruling party had not taken a decision to expand the mandate of the Reserve Bank, despite what Magashule had said.


It appears that rather than supporting the hard work of transforming state-owned enterprises into entities that can pay their own way, Magashule speaks for a faction that wants to shake down the Reserve Bank for cheap money.

At least for now, the Ramaphosa reformists in the persons of Mboweni and Godongwana have produced a strident response.

We do not know precisely what Magashule intends, but, for instance, transferring some of Eskom’s debt to the Reserve Bank’s balance sheet would constitute moving a problem elsewhere rather than fixing it. The worry is that the Zuma era has reduced our finances to such a parlous state but populists such as Magashule still get to speak on behalf of the ANC, because globally there is debate on what the role of central banks should be.

In the United Kingdom, for instance, 94 academics and representatives of civil society this week called for the next governor of the Bank of England to serve the society as a whole by accelerating the transition of finance away from risky fossil fuels, to not use policies that promote inequality and to favour investment in productive activities rather than speculation.

A key difference between South Africa and developed economies, where these debates are most pronounced, is that they have low to no inflation, allowing for central banks to make use of unconventional policy tools such as QE.

Expecting a central bank to do this in the context of a country such as South Africa, where inflation remains a problem, would be an ask too far for most central bankers.

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote.

Related stories

South Africa must revisit and refresh its idea of itself

Covid has propelled citizens into feelings of a new shared identity in which the historical force of ‘whiteness’ is fading into irrelevance

In terms of future-telling failures, this is a Major One

Bushiri knows how to pull a crowd. Ace knows a ponzi scheme. Paddy Harper predicts that a new prophet may profit at Luthuli House

Free State branches gun for Ace

Parts of the provincial ANC will target their former premier, Magashule, and the Free State PEC in a rolling mass action campaign

Institutions of higher learning should commemorate their casualties

The bust of Matikweni Nkuna at Tshwane University of Technology is an example of how we should honour those who fought for equal access to education

Seals abort pups in mass die-off

There are a number of factors — a pollutant, virus or bacteria or malnutrition — that may have caused the 12 000 deaths on Namibia’s coast.

Mbalula’s war with military vets belies the Prasa disaster

The transport minister uses humour, which his targets don’t find funny, to survive in tough times or to divert attention from a problem.
Advertising

Subscribers only

The shame of 40 000 missing education certificates

Graduates are being left in the lurch by a higher education department that is simply unable to deliver the crucial certificates proving their qualifications - in some cases dating back to 1992

The living nightmare of environmental activists who protest mine expansion

Last week Fikile Ntshangase was gunned down as activists fight mining company Tendele’s expansions. Community members tell the M&G about the ‘kill lists’ and the dread they live with every day

More top stories

Fifteen witnesses for vice-chancellor probe

Sefako Makgatho University vice-chancellor Professor Peter Mbati had interdicted parliament last month from continuing with the inquiry

Constitutional Court ruling on restructuring dispute is good for employers

A judgment from the apex court empowers employers to change their workers’ contracts — without consultation

Audi Q8: Perfectly cool

The Audi Q8 is designed to be the king in the elite SUV class. But is it a victim of its own success?

KZN officials cash in on ‘danger pay for Covid-19’

Leadership failures at Umdoni local municipality in KwaZulu-Natal have caused a ‘very unhappy’ ANC PEC to fire the mayor and chief whip
Advertising

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday