22/06/2017 03:58 SAST | Updated 22/06/2017 03:58 SAST

Improperly Changing The SARB’s Mandate Is Anti-Transformational

The public protector's recommendation is ambiguous and as unclear as it gets.

Public Protector Busisiwe Mkhwebane.
Mike Hutchings/ Reuters
Public Protector Busisiwe Mkhwebane.

On Monday, the Public Protector (PP) Busisiwe Mkhwebane recommended that the Portfolio Committee on Justice and Correctional Services initiate a process to change a section of the Constitution that outlines the (South African Reserve Bank) SARB's primary objective as "to protect the value of the currency in the interest of balanced and sustainable economic growth" to "promote balanced and sustainable economic growth, while ensuring that the socio-economic well-being of the citizens are protected".

While challenging the constitutionality of any law is within every citizen's rights, the wisdom, reasons and timing for such a challenge must be genuine and to the benefit of all citizens.

Firstly, the PP's recommendation is ambiguous and as unclear as it gets. Socio-economic wellbeing is not an explicit target achievable by a central bank. In any case, the SARB already promotes this by protecting the value of the currency, which ensures that citizens' earnings preserve buying power. It is unlikely to successfully make it through Parliament because of its vagueness, however, in the unlikely event that it does, it will expose the SARB to undue influence beyond what it can practically influence given the nature of monetary policy the world over.

Secondly, the premise of the PP's reasons to recommend a change in the SARB's mandate lacks the pre-requisite analysis of how the SARB will protect the socio-economic well-being of citizens while promoting balanced and sustainable economic growth. On the surface, this could be viewed as harmless to the central bank's transparency, image, integrity and independence, but it implicitly introduces unknown multiple objectives to the SARB's mandate. This is dangerous because it opens avenues for undue influence and ultimately its independence.

Thirdly, research by the SARB, the IMF and academics has shown that the Inflation-Targeting regime used by the SARB has resulted in lowering inflation, nominal and real interest, and output volatility, which arguably brings predictability in the macroeconomic environment and thus investment.

Fourthly, any recommendations that risk the independence of the SARB is anti-transformational in that it ignores the potential consequences in financial markets, through which capital allocation takes place. Whatever the strategies that are employed to effect transformation, its tactics need to consider the unavoidable fact that capital sits in the private sector and not in government.

Lastly, if the PP's recommendation were to succeed in changing the SARB's constitutionally mandated objective of protecting the value of the currency, it has the potential to introduce unpredictability in monetary policy, deter investment and stifle growth. Whether capital is from the West or East is irrelevant, private capital always looks for predictability in the policy environment, and any unmeasured populist policy that undermines economic growth undermines the participation of the unemployed majority of this country and that is ultimately the biggest anti-transformational agenda a government can make.