The Reserve Bank’s shabby treatment of VBS is another the reason why the bank should be restored to the people to whom it belongs. 

12 March 2018

The Reserve Bank’s decision to place VBS under curatorship is sharp reminder that the reserve bank as an institution has no appetite to see the financial sector transformed and that its lack of accountability remains poisonous for poor people and black businesses.

The lack of political will by the ANC to correct the troubling legacy of compromise and their weak negotiations strategy during the CODESA negotiations is disconcerting. Prior to the adoption of the Constitution various commentators and intellectuals, including Dr Chris Stals, the former Apartheid governor of the Reserve Bank, who served as a governor between 1989 and 1999 wanted to take the bank away from the new government after they had used it to bail out and build white banks for themselves.  

They argued that it should not favour certain groups in the society such as black farmers, black industrialists and black workers. This despite the fact that the current white owned banks are what they are because they were supported by the apartheid state.

They argued that any intervention in the market should be through inflation-targeting using interest rates to control inflation and not through administrative controls e.g. price and rent controls.

It was argued that in order to ensure the independence of the Reserve Bank it should be protected by the Constitution a wish or demand, which was fulfilled through section 224(2). It is our considered view then that narrowly targeting inflation ignores the long-term impact of colonialism and apartheid in favour of satisfying narrow interests of those already with resources including foreign investors. 

It is not an accident that the bank and national treasury did not instruct municipalities to take their money to the Post Bank and not to the banking monopolies. This is undermining transformation and also goes against the objectives and spirit of the financial sector charter.

The Treasury and Reserve bank conduct goes against radical economic transformation and must be condemned since it deviates from the objectives of transformation ;as articulated by 54th Congress to change the institutions and policies and laws in order to advance transformation.  

The January 8th statement of the ANC ignored COSATU’s call for the review of the NDP and instead recommitted the ANC to the anti-developmental conservative macroeconomic policies which have failed the working class and the poor. The same macroeconomic policy that is still based on GEAR free market ideology ,which promotes free deregulation of private companies and austerity.

As if all this was not enough, the ANC is now showing signs of retreating from a congress resolution. COSATU cautions the ANC against this retreat . We still look forward to the debate on the mandate of the reserve bank, since this is a necessary debate that should also move beyond the corridors of power and should also include workers and citizens as a whole, the real owners of the bank. We remain unwavering in our argument that the SA Reserve Bank cannot afford to continue only focusing on price stability, as pursued through inflation targeting but should consider broader economic development imperatives.  

The Reserve Bank plays an important role in financial markets, and we reject the neo-liberal calls for central bank independence from government interference. In practice, central bank independence insulates central bank policy from democratic processes but hands the bank to finance capital.  It thus robs the population of an important institution through which it can allocate resources to advance its democratic aspirations. Proponents of central bank independence argue that independence removes the printing press from the politicians, who are prone to abuse it thereby generating hyper-inflation and “political business cycles”.  Empirical evidence about the link between central bank independence and inflation is not as clear-cut as these advocates suggest.

This also means that even if the population votes for an expansionary fiscal stance, the central bank can independently sabotage government by setting real interest rates to be above the growth rate of the economy, thereby making public debt explode faster than would otherwise be the case.

The removal of the printing press as one of the sources to finance developmental government expenditure constrains the public sector to raise funds only by raising public debt, taxes and tariffs of basic goods and services such as water, electricity and transport, which may not always be optimal.

The advocates of central bank independence also naively assume that class forces cannot impinge on central bank practice.  By removing the central bank from democratic ownership and control, they place it in a position that makes it easy for conglomerate elites to co-ordinate their private interest.  In another instance, when they want to take funds abroad, conglomerates engineer a policy of strengthening the exchange rate, with the help of the central bank, thereby draining the country of foreign exchange reserves.

The Reserve Bank keeps reminding us why it is a bad idea to have monopolies and a privately owned reserve bank. The ANC cannot run away from this debate without undermining its own body of voters, who continue to call for an expansionary fiscal stance and real transformation of the finance sector .

Issued by Sizwe Pamla, National Spokesperson, COSATU, 12 March 2018