Risk of change of SARB ownership
Other countries that do this, like Zimbabwe, are all economic basket cases.
EFF, which has put forward a motion, wants politicians to control monetary policy.
The Economic Freedom Fighters (EFF) has lodged a parliamentary motion to amend laws that govern the management and ownership of the country’s central bank. Judging by the content of the South African Reserve Bank Amendment Bill the EFF is clearly intent on upping the ante on economic policy ahead of the national elections in 2019. The amendments come hot on the heels of the party pushing for the expropriation of land without compensation.
The EFF won’t be able to affect the Reserve Bank change, given that it only has 25 MPs in parliament. But the ANC has also thrown its weight behind the idea, adopting a resolution at its national conference last year to nationalise SARB.
It’s not the call for the nationalisation of the central bank that’s raising concern. It’s how its been dressed up by the EFF and the prevailing political environment.
What the EFF wants to achieve is control of monetary policy by politicians. This would be dangerous for SA. Experiences from other countries that do this, like Zimbabwe and Venezuela, are not good. They are all economic basket cases.
A change of ownership of the SARB would not in itself be a disaster. Most central banks have a share ownership structure that has the state as the majority, or only, shareholder. The SARB is one of only eight central banks in the world with private shareholders. But this does not equate to politicians running central banks. There are structures in place that ensure that central banks are free to implement monetary policy without political interference.
Unfortunately, the debate is informed by the mistaken view that private shareholders affect monetary policy. The corollary is that nationalisation would give the government, as the major shareholder, control over central bank policy.
Both assumptions are wrong
Even though the bank has private shareholders, they have no say over monetary policy. Similarly, the state doesn’t dictate policy in the vast majority of central banks that have governments as their major holders.
Changing the shareholding of the bank won’t change the way the bank is run.
Private shareholders of the SARB have very little influence over it. Their powers are limited to electing a minority of board members, the right to attend the ordinary general meeting where they also approve the minutes of the previous year’s meeting and the annual report of the bank, and the appointment of the external auditors.
The private shareholders are also entitled to receive a dividend of 10c per share per annum (before dividend withholding tax of 20%). But no individual shareholder, or group of shareholders, can hold more than 10 000 shares. This is to prevent any concentration of power. This means that in any given year the maximum a shareholder can be paid in dividends is a paltry R800.
The EFF Bill is styled as an amendment to the existing Act. The Bill aims to change the ownership of the bank through nationalisation. The state would, under this scenario, own 100% of the bank.
It also seeks to move functions currently entrusted to private shareholders to the minister of finance.
More disconcerting is the fact that the Bill makes no provision for any compensation for current shareholders. The Bill simply transfers ownership from shareholders to the state.
The proposed amendment goes as far as to state that the change of ownership will have no financial implications. This may be taken as confirmation that provisions on compensation were not inadvertently omitted or left to be considered later. The stated objective is clearly nationalisation without compensation.