PLEASE, please nationalise the South African Reserve Bank. Buy out the private shareholders, who at present have no role in monetary policy and seem only to create silly sideshows at the bank's annual general meetings. Good riddance to them.
No, my call to nationalise the central bank doesn't mean that I have gone all leftie. In fact, in the brouhaha that has erupted since ANC secretary-general Gwede Mantashe's remarks over the weekend, it's clear that neither the left nor the bank's private shareholders nor political parties have any idea what the private shareholders' role is, and what the implications of nationalising the bank would be.
The crucial point is that the private shareholders have no influence whatsoever over monetary policy or the building of foreign exchange reserves. The bank's main tasks are fighting inflation by using monetary policy and building foreign exchange reserves - and the private shareholders have no oversight whatsoever over this.
The private shareholders' role relates largely to corporate governance. It's true that some of these shareholders - most notably the notorious Mario Pretorius - have made a few good points about corporate governance at the bank.
But it must be borne in mind that the central bank isn't a private company, and corporate governance rules which are valid in the private sector don't necessarily apply to the bank.
For instance Pretorius, in an open letter to former Reserve Bank governor Tito Mboweni last year, made a fuss about the fact that the bank's profits had dropped by 61% but Mboweni had received what he said was a 42% pay increase for the last two years.
The point Pretorius and his fellow shareholder activists are missing is the fact that the bank doesn't have a profit motive. You simply cannot link the governor's pay to profit, as you do in the private sector.
Not a cash cow for the milking
Pretorius also makes a fuss about dividends, which the bank restricts to 10c per share regardless of profits. Again, you can't call for big dividends when the entity concerned isn't focused on the maximisation of profits.
Can one fault Pretorius for making a fuss about the governor's salary? Perhaps he has a point, but you don't need private backers to create a public fuss about salaries at the central bank.
All that's required is for government to pass a law making public disclosure of the governor's salary obligatory. It's also crucial to note that Pretorius wants more dividends, and is using the governor's salary issue as part of that argument. He said: "The governor's remuneration is now 21 times more than the total dividends paid to shareholders."
Again, it must be emphasised that the Reserve Bank isn't a cash cow for shareholders to milk; its function is to serve the public good and not necessarily to generate profits and dividends for private shareholders.
The government appoints the governor and his or her deputies and three other board members, while the private shareholders also appoint seven board members. But these private sector board members don't influence policy in any way, or comment on it.
The existence of private shareholders has its roots in the distant past, when it was thought this would give the bank greater independence from government. But, in practice, the bank's independence is enshrined in the constitution. You don't need private shareholders to ensure that, especially not ones who are out for personal gain.
This point was made by the Reserve Bank in a statement this week. The bank said: "Reserve Bank shareholders should ...avoid any actions which could be construed as an attempt by them to abuse their powers for purposes of self-interest and own enrichment."
Sarb's wealth belongs to the nation
The key question is, of course, what it will cost to buy out the 627 shareholders. There are 2 million shares in issue and the last trade was at R10, bringing the market capitalisation to R20m. But insiders say that the last trade was made at a time when anticipation was already building about nationalisation, and that earlier trades at much lower than R10 a share should be used to arrive at a market cap.
However, backers have been bandying about figures in the billions (R13bn has been mentioned.) This is probably a tactic to keep the bank in private hands, by making it seem too expensive to nationalise. However, it would be ridiculous for private shareholders to argue that the central bank should be valued like a private bank, which exists to make profits, when the Reserve Bank serves a different function.
The assets built up by the Reserve Bank were amassed while engaging in duties aimed at the public interest and not to increase shareholder wealth, as is the case for a private company. It would be absurd for the private shareholders to lay claim to this wealth, which belongs to the country as a whole, and has always been understood to do so.
But you can bet they will try to use the bank's assets to get the valuation higher, and thus put obstacles in the way of nationalisation.
It's very unfortunate that the nationalisation of the central bank has been mentioned in the same breath as nationalising the mines and private banks. The two issues are completely different. Obviously, nationalising private mines and banks would be crazy. But buying out private shareholders of the Reserve Bank, at a very realistic price, would make supreme sense.
Not for the reasons cited by trade federation Cosatu and the National Union of Metalworkers of South Africa, but simply because these avaricious shareholders don't understand the bank's function. Of course, if somehow - through legal action - they manage to thwart a cheap buy-out, it wouldn't make much difference to the way business is run.
Once a year, they can have their silly sideshow at the annual general meeting, and the rest of the time their existence is meaningless. But I still hope to say good riddance to them soon.
- Fin24.com