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Reserve Bank successes will determine economy stability: Expert

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The best way in which South Africa can emerge from its current economic woes is if the South African Reserve Bank remains independent, particularly from state institutions.

This is according to Dr Adrian Saville, chief strategist at Citadel, who says that the successes or failures of the Reserve Bank will determine the stability and value of the country’s currency.

“The SA Reserve Bank is a really important institution because ultimately its mandate with looking after the rand and protecting the value of the currency against other currencies, as well as against itself,” he explains.

South Africa is facing one of its biggest economic challenges post-recession. One of the contributing factors to this has been President Jacob Zuma’s surprise finance minister reshuffle last month. An already crippled economy took a huge dent when Zuma replaced Minister Nhlanhla Nene with the seemingly unknown David van Rooyen, only to turn back on the appointment a few days later by reappointing former head of finance, Pravin Gordhan.

Explaining how the values of the currency is determined, Dr Saville notes that it is essentially belief amongst businesses and other country’s in South Africa as an institution worth having an economic relationship with that determines the rand’s strength.

“This really highlights the importance of us having confidence in a responsible Reserve Bank, because it is able to create money and it does so be using fractional reserves.

He stresses that the best manner in which the Reserve Bank can look after and potentially grow the economy is to keep the national currency scarce. This is because an abundance of the rand will effectively make the value of the money cheaper.

“If a Reserve Bank can just print money then you get into the business of being like Zimbabwe, where they just printed money madly. Money doesn’t create wealth, it creates inflation. You’ll just have too much money chasing too few goods,” he highlights.

The South African Reserve Bank is not owned by any single entity or individual; rather its shares are held by numerous independent individuals who are not allowed to own more than 5% of shares in the bank.

“Because no individual can own more than 5%, it means no individual can use the Reserve Bank to extract profit,” Dr Saville adds. VOC

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