EFF sees a way for the state to grab ownership of the Reserve Bank

There are 802 private shareholders of the South African Reserve Bank (Sarb) and the Economic Freedom Fighters (EFF) wants their shares expropriated and handed over to the state.

Last month it introduced the South African Reserve Bank Amendment Bill, which many see as a not-so-subtle attempt at nationalisation. It may be a long shot – parliament’s own legal advisors say it probably doesn’t pass constitutional muster – but the EFF seems determined to give it a go.

The DA didn’t like the way the EFF had pushed its private member’s bill before the committee, when it had already been declared unconstitutional by parliament’s advisors. The EFF briefing went ahead anyway.

While the Sarb has been hailed as a bastion of independence and good governance, the EFF sees it otherwise. In a recent presentation to parliament’s Standing Committee on Finance and Select Committee on Finance, EFF deputy president Floyd Shivambu claimed the Reserve Bank presides over a banking and insurance sector owned by the white minority, where racial profiling allows discriminatory practices against black people (this is denied by the banks but there is some evidence the EFF may not be entirely off the mark).

The Sarb further presides over sophisticated cross-border illicit financial flows, resulting in tax avoidance and base erosion, said Shivambu.

“The Sarb is toothless, evidenced by its inaction when the banks fixed the currency,” says the EFF in its parliamentary presentation.

This refers to the ongoing currency rigging case involving up to 28 banks in 2017.

A campaign run by Dear South Africa elicited several thousand responses, the majority of them coming out against the bill.

Says one Dear South Africa commentator: “In my opinion, the amendments are a preliminary to temporary elected politicians having unprecedented control over state finances. This is an unhealthy risky situation in the world of finance. Looting would be that much easier, and checks and balances would be nigh nonexistent if such politicians could change controls at will.”

Says another: “For once I agree with Julius Malema. Those in control where there are no checks and balances have robbed us blind.”

‘Madness’

“It’s madness,” says Dawie Roodt, senior economist at Efficient Group.

“The economy is in depression and they are aiming at something – ownership – which is irrelevant for now. Ironically, nationalising a central bank at a time when private monies [such as cryptocurrencies] are gaining traction is likely to boost them even more.”

Roodt previously sounded the alarm over a possible motivation for nationalising the Sarb: in 2018 it had assets of R170 billion on its balance sheet belonging to the state but not available for state spending. A good portion of this was accumulated when Trevor Manuel was finance minister and tax revenues exceeded budget projections. Manuel handed over R70 billion to the state with the express instruction that it may not be used in future for state spending.

It was a smart move, and there are no doubt keen eyes on this pot of money at a time when it could solve a lot of problems.

Further expanding on its motivation for introducing an amendment bill, the EFF cites this famous quote attributed to Mayer Amschel Rothschild (founder of the Rothschild banking dynasty): “Permit me to issue and control the money of a nation, and I care not who makes its laws.”

The party says the Sarb’s private ownership structure is majority white and does not reflect the demographics of SA, “and we are proposing a law, an amendment that will take shares from 800 odd private shareholders [and give] to 57 million South Africans”.

Global perspective

Research by the EFF suggests just nine of the roughly 240 central banks in the world have private owners. Only in Italy, SA and the US does the state have zero shareholding in their respective central banks. Most of the others are owned 100% by the state.

The proposed amendment bill will vest the power to appoint Sarb directors with the minister of finance, who will also have the power to appoint its auditors.

The EFF wants Section 10 of the Sarb Act to be amended to remove its power to “form shares” for issue to private owners, as these will henceforth be owned by the state.

Section 13 of the Sarb Act outlines certain prohibited businesses, such as the purchase of its own shares, or the purchase of shares in a bank (without the minister of finance’s approval). The proposed bill seeks to remove these prohibitions, which would allow the Sarb to purchase its own shares, buy shares in a bank, and remove limitations on its ability to purchase government bonds from National Treasury.

Also up for amendment is Section 21 of the Sarb Act, which limits the Reserve Bank’s share capital to two million shares of R1 each (R20 million).

Mandate

The Reserve Bank’s mandate is to protect the value of the rand in the interests of balanced and sustainable growth, to supervise the banking sector, and to act as lender of last resort to the commercial banks.

The latest financial results show the bank holds total assets of about R1 trillion, an increase of R264 billion over the 2019 figure due to high values for its gold and foreign exchange reserves.

Though the bank made net income of R7 billion for the year ended March 2020, dividends paid to shareholders is capped at R200 000. Hence, there is little financial benefit to owning Sarb shares other than participate in shareholder functions such as electing directors and getting a bird’s eye view of events in the high cathedral of financial control.

And who exactly are the shareholders identified by the EFF?

Finance Minister Tito Mboweni (with 10 000 shares, according to the EFF presentation), DA shadow minister of finance Hill Lewis (10 shares), Anton Rupert Trust, Absa Bank, Discovery Limited, FirstRand Bank and Nedcor, to name a few. It would make sense for Mboweni and the DA to own shares to keep an eye on things at the Reserve Bank.

But as lawyers have pointed out, expropriation without compensation is unconstitutional as things stand.

The Constitutional Court has ruled that expropriation must be accompanied by compensation. Advocate Noluthando Mpikashe, the parliamentary legal advisor, told the standing committee that the law is vague as to what is considered just and equitable compensation, and that the EFF bill can expect a rough ride through the Constitutional Court.