Mboweni defends bank’s independence

JOHANNESBURG – South Africa’s central bank does not and cannot suffer interference in its independence, despite being controlled by the government and private shareholders, Reserve Bank Governor Tito Mboweni said.

Mboweni said the fact the central bank was owned by private shareholders had no bearing on its independence or its role as a public institution. “In South Africa, interference would not happen and it could not happen,” he wrote in Catalyst, a magazine published on behalf of financial services group Sanlam.South Africa’s central bank is one of a few in the world to have private shareholders, who are entitled to appoint half the SARB’s 14-strong board of directors.The other seven board members – including the only executive positions of governor and two deputy governors – are appointed by government.”The reality is that whether a central bank has private shareholders or not does not undermine its independence, and independence is the crucial issue in the conduct and management of central banks,” he said.”It means that there is no interference with monetary policy by the government, by academics, by the players in the marketplace or by commentators and the financial media.”Mboweni said the central bank should be independent in all respects and be able to pursue its objectives “without fear or favour”.It raised interest rates by 200 basis points to 9,0 per cent between June and December last year, in an effort to contain inflation within the government’s three-six per cent inflation target – a policy vehemently opposed by the country’s powerful trade union movement.Under the South African Reserve Bank Act, private shareholders own the bank, but individual investors are limited to the number of shares they control.They receive only a 10-cent dividend a year.The shareholder-appointed directors must represent a broad spectrum of the different sectors in the economy, and have no control over the day-to-day operations of the bank.Mboweni – a former labour minister under the ruling African National Congress government – said the South African central bank was one of the most independent in the world.He added that there was strong support across the world for increasing the independence of central banks and to separate the powers to create money and spend it.The SARB has been widely credited for keeping a tight control of inflation, and has successfully built up South Africa’s reserves to just short of US$23 billion in December, a far cry from a negative net position before 2004.Nampa-Reuters”In South Africa, interference would not happen and it could not happen,” he wrote in Catalyst, a magazine published on behalf of financial services group Sanlam.South Africa’s central bank is one of a few in the world to have private shareholders, who are entitled to appoint half the SARB’s 14-strong board of directors.The other seven board members – including the only executive positions of governor and two deputy governors – are appointed by government.”The reality is that whether a central bank has private shareholders or not does not undermine its independence, and independence is the crucial issue in the conduct and management of central banks,” he said.”It means that there is no interference with monetary policy by the government, by academics, by the players in the marketplace or by commentators and the financial media.”Mboweni said the central bank should be independent in all respects and be able to pursue its objectives “without fear or favour”.It raised interest rates by 200 basis points to 9,0 per cent between June and December last year, in an effort to contain inflation within the government’s three-six per cent inflation target – a policy vehemently opposed by the country’s powerful trade union movement.Under the South African Reserve Bank Act, private shareholders own the bank, but individual investors are limited to the number of shares they control.They receive only a 10-cent dividend a year.The shareholder-appointed directors must represent a broad spectrum of the different sectors in the economy, and have no control over the day-to-day operations of the bank.Mboweni – a former labour minister under the ruling African National Congress government – said the South African central bank was one of the most independent in the world.He added that there was strong support across the world for increasing the independence of central banks and to separate the powers to create money and spend it.The SARB has been widely credited for keeping a tight control of inflation, and has successfully built up South Africa’s reserves to just short of US$23 billion in December, a far cry from a negative net position before 2004.Nampa-Reuters