Calls for a state bank have fallen on deaf ears for more than a century

Ideas can be like a volcano. They can lie dormant for many years before suddenly erupting again. Take calls for the creation of a state bank. It is an idea that is almost as old as SA — the political union, not the land mass. It has cropped up periodically in this country since the end of World War 1. Its eruption has always been caused by the country’s political and economic mood.

However, successive SA governments since 1910 have trod warily around the idea of a state bank. That is until 2020, when President Cyril Ramaphosa said in his state of the nation address, “We are also proceeding with the establishment of a state bank as part of our effort to extend access to financial services to all South Africans.”

The idea of a state bank and the ambition to extend financial services to all citizens have over the decades been put forward by politicians of different ideologies. Twice, the ideas of a state bank and state ownership of the central bank have been rolled into one.

The resurfacing of the state bank idea often has to do with worsening economic conditions or perceptions that commercial banks aren’t lending to certain segments of society.

Shot down

There were calls for a state bank on the back of the financial crisis that hit SA at the end of World War 1. They were voiced at the 1919 Gold Conference by the SA Labour Party’s Frederick Cresswell, whose call for the establishment of a state-owned central bank was rejected. The conference did recommend the establishment of a central bank though.

Though Cresswell’s proposal was shot down, the idea of a state-owned central bank continued to haunt the Reserve Bank, which opened its doors in June 1921. Soon after the establishment of the Reserve Bank pressure was put on Jan Smuts’s government “to establish an institution that would provide ready and easy access to credit at low rates of repayment”. These calls were fuelled by the tough economic conditions in the mid-1920s.

Calls for a state bank were prominent in the 1924 election campaigns, led by the Afrikaner nationalists of JBM Hertzog. The context was the post-World War 1 depression, among whose victims were farmers, an important political constituency. This forced Smuts to change his tune, saying he was in principle not opposed to the idea of a state bank.

Hertzog, whose coalition displaced Smuts in the 1924 election, did appoint two experts to revisit the concept of state-owned central banking. Unlike Smuts, who was close to the British establishment, Hertzog turned to the US and the Netherlands. However, the conclusion of the two experts was that a state bank “unavoidably comes under the influence of the ruling government based on the constitution of political parties”.

No update

The SA Labour Party struck again in 1946, calling for the nationalisation of the Reserve Bank. This was on the back of a similar move by the Labour Party in Britain. The idea was shot down by SA’s finance minister at the time, who flagged “the danger of state control being used for political purposes, without regard to sound finance”, and added that what really mattered was not legislation but policy.

The deterioration in SA’s economic performance since the 2008 global financial crisis has caused yet another eruption of the state banking volcano, including the ANC resolution calling for the nationalisation of the Reserve Bank.

Though the current finance minister, Enoch Godongwana, appears lukewarm on the state bank idea, his immediate predecessor, Tito Mboweni, said at the end of July last year — a few days before he left office — that the government had identified the African Bank as the vehicle for the establishment of a state bank. There has been no update on any progress since then.

However, should SA’s economic woes deepen, making it tougher for some ANC constituencies, do expect calls for state intervention in the financial sector to grow louder. And should the country get a state bank, it would be a dream — or a nightmare — that has taken more than a century to become a reality.

• This column draws heavily from Russell Ally’s book ‘Gold & Empire: The Bank of England and SA’s Gold Producers 1886-1926’, as well as JA Henry’s ‘The First Hundred Years of the Standard Bank’.

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.