The relevant clause in the SA Constitution that deals with the “Primary Object” of the South African Reserve Bank states as follows:
The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.
So let me set the following conundrum. If, in protecting the value of the currency, the result is imbalanced and unsustainable economic growth in the Republic, is the SARB doing its job? My answer would be an unequivocal “no”.
So which then is the higher priority?
- Should the SARB be protecting the value of the currency? (Note: Even here conflict arises. Should the SARB be protecting the value of the currency in terms of its foreign exchange value? Or its value in Rands after taking into consideration inflation? The two concepts are linked but they are by no means the same.)
- Or should the SARB see the interest of promoting balanced and sustainable economic growth as its overarching priority?
Which one supersedes the other if they were to come into conflict with each other? Which one is more desirable? No or low inflation/no depreciation and no growth versus higher inflation/greater depreciation yet higher and more sustainable growth?
Even recognizing that in the real world, there is a degree of trade-off between the two, I know which one I would pick: without question, the latter option.
Let’s be specific. Would you prefer to be living as we are now – latest GDP quarterly growth declining at 3%, inflation effectively inside our target at 6%, currency up a massive 30% vs. the US Dollar in the past year and unemployment over 25%? Or would you rather choose the combination of latest GDP quarterly growth rising at 6%, inflation at 11%, currency up a meagre 6% vs. the US Dollar in the last year and unemployment under 10%?
If you chose the former, you would indeed be living in South Africa. If you chose the latter – as I would have done – you would have been living in India.
I am far from being a constitutional lawyer but reading the exact words describing the primary object of the SARB would lead me to conclude the following:
If – as now – you cannot set a monetary policy that achieves balanced and sustainable growth, no matter what you might be doing to “protect the value of the currency”, you are not achieving your overarching objective: balanced and sustainable growth.
BOTTOM LINE: The overarching objective of the SARB is balanced and sustainable growth; in achieving this, the SARB should do its best also to protect the value of the Rand. But if – and it can happen, as now – the two objectives were to come into conflict, the latter is more ‘negotiable’ than the former, ESPECIALLY IF BY ‘NEGOTIATING’ IT YOU THEN END UP WITH A GREATER LIKELIHOOD OF ACHIEVING THE FORMER.
p.s. What did India do with the creamed off US dollars its Reserve Bank surely collected in the past year or so? Hmmmm. Who just bought 200 tonnes of gold from the IMF?