Cape Town – Nearly 22 million South African citizens have no protection against price volatility and are vulnerable to abrupt macroeconomic instability, economist Dr Iraj Abedian stated in an affidavit on Friday.
“The stability of the value of the currency is critical to their welfare,” he said. “As such the primary mandate of the SARB, as defined by the Constitution, has an extraordinary social welfare dimension.”
"(The) impact of a downgrade to South Africa's long term currency rating would be significant and devastating," he said. "A downgrade would have a disproportionate impact on the most economically vulnerable members of South African society."
Abedian’s affidavit was submitted to court by ABSA as part of its support of the SA Reserve Bank's urgent application to review and set aside Public Protector Busisiwe Mkhwebane's remedial action regarding her report on the Bankorp bailout that occurred during apartheid.
Barclays Africa said in court papers that it wants the court to add the bank as a co-applicant with SA the Reserve Bank (SARB) against the Public Protector.
Abedian’s affidavit explains the importance of the reserve bank.
“By pursuing price stability within an explicit range (or a point), the central bank makes its policy preferences accountable, transparent and largely predictable.
“In this way a major source of uncertainty is largely removed from the decision-making equation. Not only are the investment decisions much less complex, but all economic contracts have a common and credible anchor.
“For example, trade unions are better placed to negotiate their short and medium-term wage agreements. Social welfare policies are likewise easier to formulate.
“The role of a central bank, therefore, is to create a monetary policy environment that has credibility, predictability, and accountability."
Abedian said to achieve the goals of credibility, predictability and accountability, it is critical that the central bank is left free of political interference in its operations.
“Monetary policy credibility is a medium to long-term achievement which requires consistency over time and can be achieved if the bank is safeguarded against short term expediencies of a political nature.
“The primary object of the SARB, as defined in the Constitution, is to preserve the value of the currency, the Rand, and this primary objective must be carried out ‘in the interests of balanced and sustainable economic growth’.”
Mkhwebane’s remedial action, which is being challenged, includes directing the Portfolio Committee on Justice and Correctional Services initiate a process to change the Constitution “in pursuit of improving socio-economic conditions of the citizens of the republic”. She also recommended they amend a paragraph in the Constitution that removes reference to “protect the value of the currency”.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inboxRead Fin24's top stories trending on Twitter: Fin24’s top stories