LETTER: Reserve Bank can stimulate economy in many ways

I have no desire to flout President Cyril Ramaphosa’s request that the debate over the independence of the SA Reserve Bank cease, but I think a narrow definition of the function of the Bank is not helpful and I have some insights that may be useful.

In 1998, the finance committee in parliament was concerned about the same issue and set up a multiparty group I chaired to investigate this issue. We travelled to Chile, Mexico and Sweden, where we met the deputy governor in each case and discussed the role of their bank.

As it happened, the governor of the Bank of England came to Cape Town shortly afterwards, and he came to see me for an hour’s discussion on the role of the Bank of England. When I indicated some difficulties in appreciating certain technicalities he offered to send a senior official from London to help me draft a chapter in my report. That report was approved by the committee.

In addition, Chris Stals, governor of the Bank at the time, invited our committee for a two-day briefing by the heads of his departments, where we were given substantial documentation to study. He also gave me a copy of a speech he had made at a conference of most central bankers in the world to commemorate the centenary of the Bank of England. In that speech, Stals argued that the term “independent” was not really appropriate, and that he preferred “relative autonomy”.

This distinction concurred with what we were told on our international visits. In all cases the deputy governors held that no central bank could make decisions in isolation. Governors regularly met with the minister of finance, where the performance of the economy as a whole was discussed.

The Swedish deputy governor told us he had a monthly arrangement with the presidents of the commercial banks where they discussed the state of the economy, interest rates, the exchange rate and the money supply needed. He insisted, as did all the others, that a central bank could not do without these discussions and make policies in isolation.

As to the SA Reserve Bank, anyone who has read its quarterly reports would see that deep research is done into the functioning of the economy as a whole, which clearly must have some influence on decision-making. We also know that our Bank, like all others, prints new money to fill the need of a growing economy and replace worn-out notes.

Our committee also found that there is a distinction between what is called goal independence and operational independence, and especially found that goal independence is a political function, conveyed to the Bank by the finance minister, whereas operational independence is a function left entirely to the Bank itself.

We all know central banks around the world use interest rates to stimulate or calm the financial markets and investments, but this is by no means the only tool available to them to influence the way an economy operates. Given the dire straits currently and the huge problems arising from our deficiencies, we clearly need every trick in the book to encourage investment, particularly in the productive sectors of the economy.

Let us therefore engage in a broad debate about the whole bag of tools that are available to stimulate the economy. Such a stimulus is urgently needed and will not eventuate if we are bogged down in rigid and dogmatic argument.

Prof Ben Turok
Former ANC MP, now director of the Institute for African Alternatives