I was thinking about money the other today. It's that time of the year, I guess, where we assess our income and expenditure and try to figure out more ways to make money.
As a kind of visual aid, I drew out one of those wonderful R 100 notes out of my wallet, and imagined my wallet being filled with those blue bills. I stared at it for a few seconds and noticed it was signed by T Mboweni, so I figured that this must be an old bill. Then I looked a little closer and noticed that the "I promise to pay the bearer R 100" that our notes used to have was missing. "Heck", I thought, "this isn't a bill at all, it is just a piece of paper".
You see I grew up believing that a money note was a bill of exchange, a promissory note. That is what I had been taught in economics, and my study of the Reserve Bank Act in the 1970's. Now what I saw was just a piece of paper with pretty pictures and some fancy insignia, Zebra's on the back, and "100" printed all over and the words "ONE HUNDRED RAND" on it.
So being the curious person that I am, I went and did some research. I discovered that the Bills of Exchange Act still existed, and in fact was still representative of a signed instrument in writing ordering another to pay on a certain date, a certain amount of money. I was now more curious about this darn R 100 note in my wallet. Why doesn't it say, "I promise to pay". Is it no longer a Bill of Exchange?
This got me researching a little deeper, and I discovered that money no longer needed to be issued by the Reserve Bank as a Bill of Exchange (a promissory note), as money was now called "fiat" money, or "near money". I found this term quite perculiar. How can something as hard as currency be called "near money". If it's "near money" it can't be money can it?
Anyway, as I already knew, the Reserve Bank was responsible for printing this "near" money. This got me really curious, so I downloaded a copy of the Reserve Bank Act of 1913, and began reading it. It was the usual legal jargon telling me stuff I had learnt a long time ago.
I had even leant that the Reserve Bank was owned by the government. In other words it was an independent body of wise old people who knew better than us mere mortals who undertook to "protect" us mere mortals against inflation, and the oversupply of money.
"Cool", I thought so I read on further, then it dawned on me that this legal jargon was "double speak". How "independent" was the Reserve Bank? So I began to dig really deep and guess what I discovered? You will not in your wildest dreams guess what I discovered. The Reserve Bank is privately owned. It is not owned by our government. That's right. The Reserve Bank is privately owned, it is quite separate from government. It has private shareholders. Why is this not commonly known or expressed by the media, our schools, our education departments, by the government iteslf? Why is this such a big secret?
The Reserve Bank Act of 1913 gave the Reserve Bank the right to print money. This got me a bit confused. Why would any government give a privately-owned corporation the right to print money? Why not print the money themselves? This kind of boggled my mind for a while. I imagined a tender process happening in 1913 where different organisations were queuing up to be able to print money. Legal tender. Who would not want this contract? It's got to be a winner. "Give me that contract".
However, no such process took place. A contact was awarded to the South African Reserve Bank (a privately-owned bank), awarding it the right to print money. Doesn't that boggle your mind. No wonder my pretty R 100 note doesn't make any promises. What it represents is "near money", not money, not anything of real value, but a piece of paper or metal that is "legal tender". In other words, when the government wants money because it is in debt because it overspends (called the deficit), it orders the Reserve Bank to print more money.
In other words, that nice blue R 100 piece of paper represents the debt that the government owes to the privately-owned Reserve Bank of South Africa. I think that this kind of opens a Pandora's box, dont you? It raises a hundred questions in my mind, the main one is, why doesn't the government decide itself how much money should be printed and print the money itself? Why is this function given to a corporate bank? What if their shareholders decide not to print any more money? What would happen to our economy then?
History has shown that a contraction in the money supply leads to depression, so why in the world would the government, give over this right to a private corporation and why do they keep it a secret?