The ANC has made the call for more flexible monetary policy before, but has dithered in seeing it through. (Photo: Delwyn Verasamy, M&G)
COLUMN
In the era of stubbornly high inflation and amid the sting of rising interest rates, it is no wonder that the role of central banks has come under such scrutiny.
In the United States, the Federal Reserve fielded fierce criticism last year for its dithering over inflation, which saw it having to hike interest rates more aggressively and inflicting more pain on consumers.
Why did the Fed take so long to act on inflation, seeing it risk a recession? One reason is linked to that central bank’s mandate, which charges it with maintaining price stability and with pursuing maximum employment.
In South Africa, our central bank has also faced scrutiny, though for a different reason — the fact that it does not have an employment mandate. It is on this basis that the South African Reserve Bank’s role and ownership structure has been the subject of debate within the ANC for some years now.
Although the proposal to nationalise and change the Reserve Bank’s mandate is one of the more forward-thinking made by an otherwise more ambivalent governing party, there is little chance it will come of anything. This is as the state continues to lean on microeconomic reforms to the detriment of any robust analysis of the available alternatives.
The proposal to broaden the Reserve Bank’s mandate, in the hopes of shoring up the country’s struggling economy, cropped up again at the ANC’s 55th national conference in December.
In its organisational report, the party called for a more “flexible monetary policy”, noting: “The monetary policy regime followed in South Africa has been more restricted to narrow inflation targeting, with rising inflation and higher interest rates making life more difficult for consumers and SMMEs [small, micro and medium enterprises] in particular. Linked to employment targeting, monetary policy must actively support the development of domestic productive capacity, to advance industrialisation.”
The document goes on to call the current ownership structure of the Reserve Bank “irregular”, suggesting that — instead of having private shareholders — it ought to be 100% publicly owned. This, the report states, “is another matter that the conference required to be regularised, in line with established international practice”.
The proposal has garnered a good amount of attention from news outlets, despite similar calls having been made at the party’s 2017 and 2012 national conferences.
At the 2012 conference in Mangaung, the ANC added to its call for a more flexible monetary policy that the government “should engage with the new wisdom developing on macroeconomic policy around the world in response to past failures and the global crisis”.
“Yawn,” was one economist’s response to an article covering the ANC’s renewed call, though it is likely the fact that the party’s other economic proposals are so stodgy that the one pertaining to the Reserve Bank has elicited any reaction at all.
The proposal certainly makes the ANC appear more edgy than it actually is, so it is no wonder the party has held onto it for this long.
But, if you read further into the 2022 organisational report, it is clear that the party will (as it is wont to do) err on the side of restraint.
The restructuring of the Reserve Bank’s ownership should happen in a conscientious manner, the report suggests. “This will safeguard its constitutionally enshrined independence and minimise any liabilities to the state, conscious of the cost implications.”
President Cyril Ramaphosa has also endeavoured to assuage concerns regarding any changes to the Reserve Bank, reportedly pointing out that the matter is still up for debate.
Besides the high costs associated with buying out the Reserve Bank’s existing shareholders, a push for nationalisation also risks creating the impression that the government wants greater influence over its decisions.
The party has emphasised that this is not the case. Considering the punishment meted out by markets on over-zealous politicians, it is important that the government maintains its image as being shrewd in the face of political pressures. The government has an even greater incentive for prudence to prevail as it tries to avoid any volatility ahead of the 2024 general election.
There is also the fact that changing the Reserve Bank’s mandate requires a constitutional amendment, which will require a two thirds majority to push through.
Although the constitutional amendment could definitely find support outside of the ANC, there is a chance it will meet the same fate as the resolution to allow land expropriation without compensation, which has also been part of the ANC’s policy lexicon for the last decade.
By the time that resolution faced scrutiny by MPs, it was considered too watered down to pass the muster of its initial backers.
It is important to note that, contrary to how it has been framed over the last years, the call to nationalise the Reserve Bank and change its mandate is not progressive in and of itself.
As the ANC and others have pointed out, changing the central bank’s ownership structure so that it is no longer in the hands of private shareholders would bring it more in line with global practice. Other than South Africa, there are only seven other countries — Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey — that have privately owned central banks.
The call for a more flexible monetary policy is also not particularly ground-breaking. The Federal Reserve’s dual mandate, as well as its less precise inflation target, is considered a valuable asset given the shocks economies face.
Reserve Bank governor Lesetja Kganyago has pushed back against calls for an employment mandate, saying that changes to monetary policy have a slim chance of overcoming the economy’s structural constraints.
“It might have been a vague aspiration, adding nothing to our existing concern for the state of the real economy. Or it would have been an excuse to make policy mistakes,” he said in 2021.
But there is the danger that in an effort to avoid policy mistakes, our greatest tools to affect economic change are blunted. This is as fiscal policy, which could also be used to grow our economy, has been used to do the exact opposite.
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