SARB nationalisation debate is irrelevant

In comparison with other issues surrounding the South African Reserve Bank, the debate on whether it should be nationalised or not is really irrelevant. Some argue the SARB should be nationalised (as it is one of the few privately owned central banks in the world), while others argue it should continue to operate as it has since its inception.

Whether the SARB is privately or publicly owned – it remains the government’s private banker.

The government created the SARB in 1921 in terms of a special Act of Parliament. In 1927 the accounts of the government were transferred to the SARB, establishing it as the government’s banker. Little has changed fundamentally since then apart from the fact that the SARB now wields even more control over the economy – since 1944 the SARB has had the sole right to issue banknotes in South Africa (see SARB website). Not to mention the SARB’s control over liquidity in the banking system which gives it the ability to almost single-handedly control lending rates between commercial banks and hence, to control the market rate of interest in the overall economy.

Wouldn’t it be more relevant – for starters at least – to schedule for the debate agenda the topic of whether the SARB is a candidate for investigation by the Competition Commission?

From the CompCom’s website:

The need for a new competition policy in South Africa must be seen in the context of a historical legacy of excessive economic concentration and ownership, collusive practices by enterprises and the abuse of economic power by firms in dominant positions.

Why investigate six local airlines looking to use the laws of supply and demand to their advantage to profit during the 2010 FIFA world cup – when you’ve got a one-firm industry attempting to recreate the laws of economics all by itself. Judging by the CompCom’s statement above, central banking is a prime candidate for investigation: it is an industry of excessive economic concentration and ownership; it is an example of an entity which employs collusive practices with commercial banks and government to control the market rate of interest and enforce the Rand as legal tender upon the public; and through all the above an entity which abuses its power as a firm in a dominant position.

Seriously folks, forget the debate on nationalisation versus maintaining the status quo. It is irrelevant. More relevant is the fact that the central bank is the sole authority with the ability to create continuous inflation, in the process destroying wealth on an economy-wide scale by wiping out the value of your savings and real incomes of the working and middle classes at a target rate of 3% – 6% per year. In other words, the SARB is the only authority with the ability to implement the government’s invisible tax policy. Furthermore, the SARB is also the sole authority which creates the moral hazard and hence lays the groundwork to set the boom-bust business cycle in motion.

Whether the SARB is owned by private investors or the government does not alter the abovementioned facts.

UPDATE: Rob Murphy at Mises.org has more