How the South African commercial banks are ripping off its customers and the complicit behaviour of the South African Reserve Bank
I have always been intrigued by the manner in which our commercial banks abuse the money supply-and-demand system. The most interesting part is that they get away with it year after year and the South African Reserve Bank is complicit in this theft of the innocent citizens' hard earned currency. The status quo is such that the privilege to create money through debt creation rests with commercial banks which is a massive subsidy to the private banking sector, which is harming the public. The way that money is issued and used seems ingrained and too hard to question.
My take is that money creation has to be for the advantage of all citizens and it should not for the benefit of a few but to the detriment of the majority. The money as it were, today, is a circulating medium which floats at the mercy of loan agreements of banks. These banks lend, not money but instead promises to supply money they don't even possess and that's where the SARB's complicity lies. In terms of the minimum reserves required and/or stipulated by the SARB, banks can lend R1m out but for that they only need to have R25K of their own money.
This means that the reserve they must have for such a loan is a meagre 2.5% and in the process they make a killing. This is a gross abuse of the public's ignorance and this fictitious money supply is a problem in more ways than one. This is especially true because the SARB which is the custodian of the country's currency has previously entered into a scheme to pay interest to an institution even though the funds were still sitting in its own books.
A case in point was the lifeboat scandal and our memories are still fresh of that incident back in the mid ‘80s which was a rescue package given to Bankorp when it was in financial trouble and thus intended to keep it afloat. The SARB illegally, against the provisions of the SARB Act, lent R300m to Bankorp (which was later bought by ABSA) in 1985. This scandal rocked the local banking fraternity because to further assist in preventing Bankorp from collapsing, the SARB lent it a further R1.5bn in the mid 90s at a lowly interest rate of 1% per annum when it wasn't permitted to do so.
Why am I bringing this matter up? It is because Bankorp went on the lend this money at a whopping 16% which effectively meant that it made a 15% profit on money that it shouldn't have been given in the first place. The governor at the time was Mr Chris Stals, who was exposed by the former MI6 intelligence officer, Dr John Coleman as having been a member of the Committee of 300 which in turn aided apartheid South Africa through a loot of R20bn of public coffers to sustain that evil divide and rule system through various banks linked back to Switzerland.
To this day, no one at the SARB or government has really bothered to recoup the close to R2bn that was indirectly borrowed to Volkskas by virtue of its acquisition of Bankorp of which the former became one of four banks which merged to become ABSA. I have previously written about another R6bn which was given to SASOL with conditions and provisos. I lamented how our government has never asked for its money to be paid back nor has it sought to leverage off its money in order that its citizenry can get cheaper fuel.
As a former banker, I was for over 15 years exposed to how unscrupulous commercial banks are and how they operate. It worried me though as to how it is that the South African Reserve Bank allowed this thuggish behaviour in a white collar industry which is supposed to be governed by ethics, good corporate governance and morality. It wasn't until I got exposed to the internal dealings and processes at the South African Reserve Bank that it all made sense.
I now know as to how the lender of last resort operates which gave me further insight and comprehension as to why these banks have for so many years been getting away with murder by lending money that they don't have. Whenever government comes up or proposes reforms, the banks resist any or all manner of monetary policy reforms in the money creation system. As usual they throw their toys and use emotional blackmail on government in terms of how that will change the markets' perception of our country.
Our local banks are by far the most expensive in bank charges and interest rates in the entire world. A customer is for instance charged for depositing one's own money what is generally referred to as a Cash Deposit Fee (CDF). Surprisingly, when a customer withdraws this money, yet again the customer gets charged a cash withdrawal fee. And the bigwigs at the SARB then wonder as to why it is that the culture of saving is so low or almost non-existent in this country.
To be honest, I doubt that anyone in their right mind would want to save money when the interest rates tiered are so low that it would even discourage a wealthy would be investor out of fear and/or risk of getting out less than the money the individual would have deposited. I accordingly propose a concept called "just money" which effectively sets out how money supply should be run and managed in South Africa. My exposure to the banking fraternity enables me to safely say that there are horror stories of how the SARB colludes with our banks.
Why is it really crucial to get rid of the current dishonest system of money creation and lobby for reforms such that the issuance thereof is done in a non-partisan way? For the life of me, I still can't understand the justification of our government borrowing the use of its own money, creating state debt and then paying interest to private institutions for it. This awe, notwithstanding this method being applied the world over in central banks. Now, the creation and issuance of money is a supreme prerogative of the government to satisfy its spending power to the buying power of its citizens and/or consumers.
A likely solution is the nationalisation of money creation and/or government setting up a state owned bank where all of its treasury monies can be invested in its own bank. Should the current system of concentrated credit and control of the nation's development in the hands of a few banks be changed to an honest money system by means of nationalising the money creation process, the state will have gained for the common good.
Others, and here I refer to economists, pundits, bankers and those proponents of the current system who are obsessed with market fundamentals, may ask as to how will this monetary reform of the information age in the 21st century affect the country and its citizenry? It can be achieved only through advantages which outweigh the disadvantages.
The state would for instance secure the current money without state guarantees, thus avoiding costly bank rescue packages. It means that the pro-cyclical peaks and troughs in the business cycles will be smoothed out. The state will then have full control of the money supply with the immediate effect of lower inflation and interest rates. The full profits in the money creation process will flow back into the public purse.
The beauty is that the state will issue interest and debt-free money in the future. The commercial banks and their shareholders on the other hand will profit from a stabilised economy. Admittedly there are draw-backs but the only one of significance for the banks is that future money creation will be impossible and lending money they don't have in terms of their reserves will cease for sure.
Furthermore, there will be no more free lunches available to them, with the historical private corporate gains in the money creation now entirely for the public benefit. What is this Just Money concept then? Perhaps it's best to start with the definition of money: it's cash which is made up of all the banknotes (printed by SABN) and coins (printed by SAMC) which are in-turn issued by the SARB. The figure as at October 2009 was R71bn, which is the narrowest money aggregate together with the deposits of the commercial banks held with the reserve bank sitting at R49bn. This monetary aggregate is called M0 = R120bn, also known as the legal tender.
The wider definition of plain money as a means of payment is combined in the sight deposits or current accounts (monetary aggregate M1 = R765bn). The widest definition of money is the store of value aspect, known as Capital in the savings and money market accounts (M2 + M3 = R1939bn). Now strangely, the debt-based money system always creates more credit than money.
So the goal of JUST MONEY is to create an honest and equitable 21st century monetary reform solution in a slick and simple way, including a smooth transition, without international disruptions. Potentially, the sight deposits (M1) will be declared a legal tender, where the banks have to take the current accounts off the bank's balance sheet, since these belong to the customers anyway. It will genuinely nationalise the Rand by transferring to the SARB the responsibility for creating interest and debt-free money for the whole of the public money supply and thus prohibit anyone else from creating bank account money out of thin air (e.g. forging metal coins and counterfeiting paper banknotes are already a criminal offence).
For this to be achieved, this system only requires an amendment of the current SARB Act (No. 90 of 1989) with two words namely "electronic money". The resultant effect thereof would be that the reserve bank would control the quantity of the entire stock of money and will have a direct influence on inflation.
The knock-on effect is that prices could become stable hence savings could be stimulated in the country. The exchange rate would in-turn be positively affected and furthermore, the country's perception abroad would be enhanced thus negating the fears of the doubting Thomases captioned above. Other spin-offs are that the public purse will have savings amounting to the creation of additional money.
If this is calculated on the money definition M1 over the last 10 years, this would on average have led to R50bn trickling in annually. Therefore, nationalising money is not a tax on money and it's far better than calling for nationalising banks or their bad assets which is being resisted. This would earn the state additional revenue, which is currently being creamed of by the commercial banks. In the medium term a money reform would enhance the economic stability of our country. It will further create safe money, stabilising price levels, bringing a stable exchange rate and will be attractive to domestic and inward investment capital. The current tendency of commercial banks would immediately be a thing of the past.
The interest rates would drop significantly and hover around or even be less than 5%. The SARB would no longer be obsessed with inflation targeting which is so hated by COSATU that the labour movement would immediately fall in love with the lender of last resort. I urge dialogue with government on this concept. Might I add that Volkskas laundered close to R20bn through various schemes with Armscor which found its way into Switzerland banks.
All these funds are traceable and the very finance manager and conduits through whom they were looting (i.e. personnel who assisted the apartheid regime). Again the common denominator is ABSA whose then Volkskas CEO (Dr Danie Cronje) was instrumental in this money laundering. When the four banks amalgamated and later became ABSA, Dr Cronje became its Chairman. This bank (ABSA) is the very institution into which Bankorp was incorporated (through Volkskas).
As if that was not enough, the then Deputy Governor to Dr Chris Stals (who presided from 1989-99) who was present when the second tranche of money (R1.5bn) was given to Bankorp, (Ms Gill Marcus) then later became ABSA's chairman, thus succeeding Dr Cronje in the process.
She somehow made her way back into the Reserve Bank at the helm, which means that those funds will never return to the SARB. In terms of the Reserve Bank Act, 90% of profits they make must be given back to government notwithstanding the majority being private shareholders. It follows that the public is indirectly being denied the much needed resources which could help towards service delivery initiatives.
I mapped this scenario in order to illustrate the point of the SARB's complicity since this theft is being hidden by the media fraternity. The Reserve Bank made a whopping R1bn loss whilst its subsidiary (The South African Bank Note Company) moved from an R81m profit in the 2010 financial year to a R23m loss. Surely those funds (a total of R2bn and even more considering interest over the years) should be returned to recapitalise or inject the much needed working capital to the Reserve Bank.
I thus want to call on the Minister of Finance and the President to look into this matter and perhaps expediting the Post Bank's banking licence is a possible solution to circumvent this theft by the big four banks.
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