Bank could inject liquidity

Peter Bruce has a great proposal in his suggestion for all JSE companies to issue an additional 1% of their shares into a special fund administered by top retired business executives. The question is how to turn those equities into their financial value of R150bn without lowering the market value of the overall JSE.

I suggest doing what many central banks in the world are doing, notably the Japanese and Swiss central banks: have the Reserve Bank expand its balance sheet by buying those equities. This exercise in quantitative easing by buying equities as well as government bonds is an accepted practice among central banks.

The fear that this extra liquidity injection into the money supply might be inflationary is not warranted if the fund by law must invest in national infrastructure such as municipal water, sewerage, electricity and road systems. SA’s great construction companies are standing idle, there is capacity in the construction materials sector and certainly many thousands of jobs can be created.

The national productivity increase of upgraded infrastructure will mean the JSE companies will all benefit from their share issue. But keep this out of the hands of government bureaucrats regarding project management and financial administration.

Orlando Mostert

Paternoster