Business Day

Society can steam ahead by investing some of the money just floating around

- Barnes is CEO of the Post Office

Cash! Can you ever have too much of it? Yes, you can. Money was introduced as a medium of exchange, a convenienc­e, around 600BC. I’m not sure money was ever intended to be a store of wealth, and, for the most part, it isn’t.

Most central banks adopted monetary-easing policies following the financial crisis of 2008. Government­s lowered sovereign interest rates, primarily to weaken the local currency (to promote exports); and lower the returns on excess cash, so that people would stop hoarding it in uncertaint­y and start investing it in the real economy, which would build assets and create jobs.

The trouble is that everyone played the same game, so these sovereign strategies had only limited success. The whole process is reversing as we now enter a phase where interest rates are expected to increase.

This interferen­ce by government­s in the value of money has contribute­d to the emergence of alternativ­es to fiat currency, such as bitcoin, and now a plethora of other cryptocurr­encies which are not regulated (for the time being), essentiall­y creating a parallel settlement environmen­t which is increasing­ly trusted and works particular­ly where regulation impedes the free flow of capital.

Money spends most of its life in a computer and not in our pockets, sadly. However, there is a huge amount of excess cash floating around – triple what there was 30 years ago, and expected to reach a quadrillio­n (look it up) dollars by the end of this decade.

Idle capital doesn’t build things. Nonetheles­s, many top corporatio­ns store huge amounts of cash. Apple sits on more than $250bn of the stuff – most of it stored in jurisdicti­ons where it enjoys more favourable tax treatment than it would if it were to repatriate it to the US, where it incurs borrowings to fund operating costs. Silly really.

Many companies send these piles of cash back to shareholde­rs, by way of dividends and share buybacks — a sure sign that management has run out of clever ideas to invest in.

Of course, you can’t force anyone to invest money, but a lot more could be done to persuade idle capital back into the real economy. After a resilient agreement is reached on what constitute­s excess cash (in relation to solvency, liquidity and growth metrics) a tax (say 10%) could be levied on such excess cash reserves.

To avoid this tax, companies would explore more investment opportunit­ies, locally and abroad (where exchange control isn’t an inhibitor). A company could still buy back its shares, placing the cash in shareholde­rs’ hands, be those fund managers, pension funds or individual­s, but that won’t escape the net.

Similar definition­s and rules would be applied to all entities, ranging from fund managers, to trusts to individual­s.

Government­s cannot simply be gifted this extra money. A separate fund (call it the Investment and Infrastruc­ture Growth Fund — IIGF), managed by experts beyond the influence of the government of the day, could be formed to specifical­ly invest in and manage only projects approved to be in the broader socioecono­mic interest of all citizens.

South African companies are estimated to be sitting on cash reserves in excess of R1.5-trillion — we could sure do with an extra R150bn to invest in new projects.

I can already hear a groundswel­l of objections, but remember that you can avoid the tax by investing the money yourself. Besides, we would be creating economic growth, which benefits everyone in the long run.

As with any systemic solution, there will be worthy exceptions (such as, perhaps, pensioners who need income, but can’t afford risk) and at all levels in the financial system there are some forms of tax in place already, such as tax on interest and estate duty.

Over and above these, though, we should find incentives to release excess capital perpetuall­y locked up, for instance, in trusts that preserve capital from one generation to the next. Perhaps, beyond some level, whatever is left in a deceased estate should accrue to the IIGF?

Again, this could be avoided. Start passing the money down to the children earlier, (tax free, say) into family-approved investment­s, if you like. Although, even if the money is simply spent, it would provide a boost to the economy.

In countries with stark economic inequality, such as ours, a set of systemic investment rules could well ignite the growth of small businesses and create the employment we so desperatel­y need.

It’s complicate­d, but we should engage on the elements of design.

IDLE CAPITAL DOESN’T BUILD THINGS. NONETHELES­S MANY TOP CORPORATIO­NS STORE HUGE AMOUNTS OF CASH

 ??  ?? MARK BARNES twitter: @mark_barnes56
MARK BARNES twitter: @mark_barnes56

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