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The claim that South African companies have large deposits of "idle cash" in their bank accounts is firmly entrenched in our economic discourse. Yet the reality is that bank deposits are never "idle".
As Nedbank CEO Mike Brown recently explained, no profit-maximising bank would pay depositors interest for money to accumulate in their bank vaults. All deposits are on-lent to borrowers through the banking system.
Nonetheless, the government and labour continue to point to increased deposits as evidence of an "investment strike" by business, which is seen as hoarding large amounts of cash. As "proof" of this, critics point to the rising bank deposits reported by the Reserve Bank. Bank deposits of companies and close corporations have risen from R60bn in 1994 to R1.7-trillion today. As a share of GDP, they increased from 12% to 40%.
This increase in deposits has mistakenly been attributed to businesses retaining profits. This cannot be so. In looking at only half of the balance sheet, i...
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