Reserve Bank governor Lesetja Kganyago
In a lively discussion on Thursday, economic historian Adam Tooze and Lesetja Kganyago went head-to-head on a topic the South African Reserve Bank governor has held fast on — the mandate of the central bank.
Kganyago once again warned of the dangers of creative central bankers, saying they are as dangerous as creative accountants. “They lead to unpleasant outcomes,” he said.
The discussion on the role of central banks, hosted by the University of the Witwatersrand, took place amid a renewed push by the ANC to review the Reserve Bank’s mandate and to change its ownership structure. It also took place amid growing calls for central banks to take on a greater role in battling climate change.
Insisting on the “mantra of financial stability and price stability”, Tooze responded, “I fear this will become delegitimising. In an era that demands radicalism to say, ‘Never trust a radical central banker,’ forgive me for saying this, it feels almost like a cop out.
“Your job is incredibly difficult, sir. I fully appreciate that, but there are so many issues impinging on the world right now that that sort of conservatism … feels like a cop out.”
But Kganyago insisted that institutions, designed with a specific scope of responsibility in mind, ought to stay in their own lanes. “We do not ask soldiers to tackle inflation. They’ve got the wrong instruments.”
Kganyago earlier noted that central banks are increasingly being asked to address problems that fall directly under the domain of governments. The Reserve Bank governor has regularly been criticised for his view that the solution to South Africa’s immense unemployment crisis lies well outside the realm of monetary policy.
Though the Reserve Bank has the responsibility to protect financial stability, it does not have the instruments to tackle climate change, Kganyago noted. The central bank does, however, do work to help safeguard the financial system from climate risks.
However, Tooze challenged the view that the responsibility of central bankers with regard to climate change is limited to financial stability concerns. “Is it really even plausible, politically, to say: ‘Oh well, we’re going to carry on what we’re doing. Our institutions remain focused on our limited remit. We’re going to stay in our lane, because — as you say, governor — this is what we were designed to do,’” he said.
“If you take the climate challenge seriously at this level, it’s a moment like the 1970s, or the post-apartheid period in South Africa, where the constitution of society is in play … There is something just frankly slightly implausible about the idea that monetary policy can remain outside this turmoil.”
But Kganyago suggested the Reserve Bank’s priorities cannot be pulled in the various directions of the country’s many crises.
“This country faces massive poverty. Why recast the role of the central bank to focus on climate change and not on poverty?,” he asked.
“This country faces unemployment. Why recast the mandate of the central bank to focus on climate change and not on unemployment? … And the reason I am mentioning these things is not to demean or minimise the point, it is to try and say, society designs institutions to deal with particular areas and central banking is no exception.”
The governor’s rhetorical questions should be treated very seriously, instead of as an expression of impossibility, Tooze responded. The trade-offs of insisting on a limited mandate, he said, “are tragic in their significance”.
“An entire generation of people, young people in particular, are struggling to find a foothold in the labour market. This is a huge burden of responsibility for economic policymakers to bear,” Tooze added.
“And, presumably, no one can afford to sort of just cleave to … [a] sort of narrow fidelity to an institutional mandate in the face of those kinds of imperatives.”
Kganyago challenged the view that the Reserve Bank’s mandate was narrow. “The Constitution of the Republic of South Africa says we must pursue price stability in the interest of balance and sustainable growth in the republic. They were students of history, the authors of our Constitution and, when they put that, they understood that balance and sustainable growth cannot be without price stability,” he said.
“But they also understood that price stability is only one contributor to balanced and sustainable growth and you’ve got to bring all the other institutions of society into this thing.”
Kganyago added one last word of caution — institutions in a democracy matter, he said. Quality institutions with clear mandates matter even more.
State capture, he noted, endeavoured to repurpose state institutions. “So, we must be careful what we wish for.”