Disruptive financing

Public Protector Busisiwe Mkhwebane’s criticism of the Reserve Bank is timely, but not in the way she suggested. Its primary objective is to protect the value of the currency in the interest of balanced and sustainable economic growth. It has failed spectacularly. Since 1994, the cost of $1 has risen nearly four times from R3.60 to R13.

Her suggestion is that the primary object of the Bank should change by deleting the “protection of value” part and adding “whilst ensuring that the socioeconomic wellbeing of the citizens are protected”.

That is a tall order. But the Constitution allows the Reserve Bank to substantially advance socioeconomic wellbeing, if it loaned money directly to the state and state enterprises at a peppercorn interest rate. This would bypass the commercial banks and reduce the total costs of our infrastructure by up to one third.

Why commercial banks should profit from lending money to the state and its enterprises when the Reserve Bank prints the very cash that ends up with them is a hoary old question. The Bank for International Settlements made this a private bank monopoly in 1930 and 60 reserve banks belong to it.

Japan and the Isle of Man opted out. SA could follow suit, starting with printing the money needed to redeem all state loans. That is “disruptive” financing and will surely satisfy all South Africans and Mkhwebane.