South Africa's 1920s central bank quirk targeted in push by ANC

Johannesburg - Membership of the quirkiest club in global central banking just lost some of its cachet.

The South African Reserve Bank is one of a handful around the world still owned by shareholders, and that eccentric structure has just become another stick to beat it with after the ruling African National Congress mooted ending such an arrangement.

The party’s policy conference approved a proposal on Wednesday, yet to be ratified by the wider membership, that would then push to make the central bank fully state-owned.

What might look like an attempt at modernisation to conform with international practice carries with it the implicit threat of further miring one of South Africa’s most respected public institutions in the political fray.

The Reserve Bank is already enduring an attack on its inflation-targeting mandate by the Public Protector, and any move to legislate a new ownership structure could facilitate more drastic change.

The shareholder structure is a legacy of the central bank’s founding in 1921 and is typical of a bygone era when such institutions often started out as private companies. The Bank of England, for example, was only nationalised in 1946. While central banks from Switzerland to Japan retain private investors, they have long lost control of such institutions.

South Africa is “still sticking to the framework of the 1920s,” the ANC’s economic transformation head, Enoch Godongwana, told reporters in Johannesburg.

No shoes

The Reserve Bank’s private ownership has come under fire from labour unions from time to time over the past decade, as well as from some shareholders. One owner, who regularly disrupted annual general meetings and once wore traditional German lederhosen and no shoes to a gathering, demanded nationalisation and a portion of the bank’s reserves. Those currently stand at $47.3bn.

The private ownership “is an anomaly,” Rashaad Tayob, a portfolio manager at Abax Investments in Cape Town, said by phone. “If they just got it out of the way next week, then the central bank will be owned by the government like every other central bank in the world, and that would remove a potential negative that people can use to question the integrity of the central bank.”

The Reserve Bank has two million issued shares which are bought and sold on an over-the-counter trading and transfer facility after it delisted from the Johannesburg Stock Exchange in 2002. In the six months through June the central bank’s stock sold at between R1.50 and R12 each, according to its website.

The proposal to change the central bank’s ownership isn’t immediate and the country doesn’t have the money to pay the owners for their shares, Godongwana, said. Resolutions taken at the policy conference have to ratified by the party’s national conference in December, where it will also elect new leaders.

Once the party has adopted the proposal as policy, it would ask parliament to change the South African Reserve Bank Act. The ANC holds more than 60% of the seats in the legislature.

“Any notion that a change in the shareholding of the South African Reserve Bank will amount to a higher degree of control over the South African Reserve Bank is incorrect,” spokesperson Jabulani Sikhakhane said in an emailed response to questions, adding that shareholding has no bearing on policy.

The central bank will continue to follow its constitutional mandate “without bowing to any pressure, whether it be political or from the private sector,” he said.

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