Nothing sinister about nationalising Reserve Bank, says Cyril Ramaphosa
Credit rating agencies have warned SA not to tamper with the independence of the central bank, saying it could lead to ratings downgrades
President Cyril Ramaphosa says there is nothing sinister about the push to change the ownership of the Reserve Bank.
Responding to questions in the National Assembly on Thursday, Ramaphosa said the governing ANC had taken a “clear resolution that the Bank should be owned by the people of SA”.
His statement in parliament is in sharp contrast to recent comments made by Reserve Bank governor Lesetja Kganyago.
Kganyago insisted that the Bank remains independent even with private shareholding,arguing that nationalising the central bank would be too risky for the economy.
He said the bank would protect its mandate and independence, which are guaranteed by the constitution, should there be any moves to pass legislation to nationalise it.
Credit rating agencies have also warned SA not to tamper with the independence of the central bank, saying it could lead to ratings downgrades.
The DA said it would fight against the adoption of a bill by parliament aimed at nationalising the Bank. The party says nationalisation is a threat to the central bank’s independence.
In 2018, then finance minister Nhlanhla Nene persuaded the ANC in parliament to drop a scheduled motion on the nationalisation of the central bank at the 11th hour, arguing that the debate would unsettle the markets at a time when a delegation from Moody’s Investors Service was conducting an in-country visit.
At the time, Moody’s gave SA a reprieve, maintaining its Baa3 rating, one notch above junk status, with a stable outlook. The credit-ratings agency cited the change in political leadership and the recovery of the country’s institutions among its reasons for keeping SA at investment grade.
A downgrade would have meant all three major ratings agencies had SA’s foreign currency and rand-denominated debt at sub-investment grade. This would have triggered the country’s expulsion from the Citi World Government Bond Index and projected capital outflows of more than R100bn.
The ANC and the EFF have called for full state ownership of the Bank which, unlike most central banks in the world, has been privately-owned since its inception in 1921.
“We have a situation where we have external shareholders. This [changing ownership] has been done by a number of countries around the world. There are some six countries in the world that have external shareholders in the bank, and we are one of them,” said Ramaphosa.
The president said changing the central bank’s ownership would not necessarily affect the independence of the Bank.
Ramaphosa gave the UK as an example, saying the government ownership had not affected the central bank’s commitment to keep inflation under control.
“What this [doing away with private shareholders] will do is give us sovereignty. A central bank is one of the most important institutions in the life of any country. That decision [to change ownership] is there and it has to be implemented. That is the position and there is no hidden agenda,” said Ramaphosa.
“The Reserve Bank should be owned by the people of SA, not external shareholders,” he said.
The independence of the Bank has been under attack in recent years, which has rattled investors. The Bank had to go to court to nullify an instruction by public protector Busisiwe Mkhwebane, who instructed parliament in 2017 to change its primary mandate, which is to protect the value of the rand in the interest of balanced and sustainable growth.
The ANC resolved at its 2017 elective conference to nationalise the Bank.
In its manifesto the ANC says: “The ANC believes that the SA Reserve Bank must pursue a flexible monetary policy regime, aligned with the objectives of the second phase of the transition. Without sacrificing price stability, monetary policy must take into account other objectives such as employment creation and economic growth.”
Think-tank Free Market Foundation (FMF) has previously argued that the proposed nationalisation of the central bank would cut out private shareholders whose involvement helps ensure greater openness and provides transparency to the operations and auditing of the institution.
According to the Bank, when it was established in 1921, the majority of central banks worldwide had private shareholders. A similar structure was introduced in SA.
“Internationally, however, this approach has changed since the 1930s. Nationalisation of central banks during the period of economic hardship in the midst of the Great Depression commenced with the nationalisation of the central banks of New Zealand in 1935 and Denmark in 1936. After World War 2 in the wake of state ownership of key industries in numerous countries nationalisation of central banks continued,” the Bank says on its website.
The Reserve Bank and seven other central banks — Belgium, Greece, Italy, Japan, Switzerland, Turkey and US — have shareholders other than their countries’ governments. The Bank has about 650 shareholders.
Responding to another question from DA leader Mmusi Maimane, Ramaphosa said the drive to expropriate land without compensation was not an attack on investors.
“We will not expropriate investments. We cannot invite people to invest in our country then say we will expropriate what you invest. However, there is land that was stolen from the people of our country and there is land hunger out there.
“There is historical injustice which needs to be addressed. The question is how and when will we do it. That is what we are working on through the constitutional amendment. We will do everything within the rule of law,” the president said.