WHAT happens when the monetary policy committee (MPC) meets and most of its members disagree with the Reserve Bank governor? While Tito Mboweni is at the helm, the answer is obvious - they come around to his way of thinking.
But will Gill Marcus' reign, which starts on November 9, usher in a change? Will we get to a situation where a majority of MPC members can outvote the governor?
That has happened this year in the UK - and definitely not for the first time. And, given that a lot of SA's monetary policy framework was borrowed from the UK, the question arises whether a rethink isn't needed to allow for a more democratic voting system on the committee.
Mboweni has always said that MPC decisions are arrived at by consensus. But we all know that's a euphemism for his views holding sway. In the UK, on the contrary, members can outvote the governor and the way in which each member votes is made public, along with the minutes of the meeting.
The Bank of England's monetary policy committee also has one member from outside the central bank, and even had former Financial Times editor Richard Lambert as committee member for a while. (Imagine that - a journalist on the MPC!)
The question is whether - now that Marcus is taking over - some of these elements need to be imported into SA. After all, the whole idea behind creating an MPC in SA in 1999 was so that policy wouldn't be a one-man show, the personal fiefdom of a single person who might hold extreme views.
King gives in gracefully
The problems with not having a committee were clear in 1998 when Chris Stals, who was governor at the time, raised the prime overdraft rate to an eye-popping 25% - with no one to hold him back.
The importance of sometimes being outvoted was illustrated in the UK in 2007, when Bank of England governor Mervyn King wanted to raise interest rates in June 2007 and was outvoted.
At the time, the subprime mortgage crisis was unfolding and it was clear to King's colleagues on the committee that, with disaster threatening, it was not a good time to raise rates. They were proved right, as only a few months later - in August - central banks around the world undertook the first coordinated steps to increase global liquidity.
This year, King was in the opposite position, with his stance being more dovish than that of his MPC colleagues. In August, King was overruled on the expansion of the central bank's programme of printing cash by buying bonds.
King doesn't mind being outvoted on the Bank of England MPC. Will Marcus mind? Should she change the rules?
The trouble with opening the door to democracy on SA's MPC is that it immediately raises the question of broader democratisation of monetary policy, as wanted by the unions. This problem would be reinforced a hundred times if the SA MPC were to introduce outside members.
The National Union of Metalworkers of South Africa (Numsa) in its attack on the Reserve Bank earlier this year raised the so-called democratisation of the MPC.
Opening a Pandora's box?
By that, the trade union didn't mean that bank officials be allowed to challenge the governor and that an outside specialist on monetary policy be allowed in. They meant that MPC doors should be thrown open to the unions and other leftist economists.
Clearly, any MPC member has to be totally without vested interests. But it would be virtually impossible to appoint an outside MPC member who won't be accused by the unions of having just that.
More importantly, allowing the committee to outvote the governor would immediately raise the question of why a broader spectrum of votes isn't being canvassed.
If more ideas from the UK on monetary policy are imported to SA, the question immediately becomes why more isn't borrowed from the US Federal Reserve. After all, the Fed is one of the few central banks in the world whose mandate isn't only to fight inflation, but also to promote employment.
That works in the US, but in a country such as SA, where the central bank's role isn't well understood, it would probably not be a good idea.
Still, it's easy to be glib about monetary policy - whether you're left-wing or orthodox in your approach. Finance Minister Pravin Gordhan's office has already indicated that inflation targeting - also borrowed from the UK - is going to be debated.
Perhaps it's time to test all the different ideas on monetary policy and the central bank from offshore and locally in a vigorous debate. But we should never lose sight of the fact that the primary aim of the Reserve Bank is to fight inflation.
- Fin24.com