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Leon Louw, Executive Director of the Free Market Foundation, was interviewed by the Daily Bell a year ago. In the interview, he answers to the question “What about SA’s central bank? Is it part of the problem?”:
Yes, [the SA Reserve Bank] has been behaving and not increasing the money supply at excessive rates.
Since 1993, the SARB has increased the money supply by 900%, or 2,107,707,200,000 (2.1 trillion rand).
Thus, the average annual money supply growth rate since 1993 is nearly 13%. That’s much more aggressive than the US Fed or the Bank of England or the ECB (since its inception in 1999). Leon continues:
My own view is there should be no central banks. I see no purpose for them. Countries have their own currencies not as a matter of economics but as a natural psychology because it makes them feel good, makes them feel sovereign.
I agree that there should be no central banks, but disagree that there is no purpose for them, and that they don’t serve as a matter of economics. They do serve a matter of economics in that a central bank monetises government deficits by creating money out of thin air that goes toward helping government borrow more cheaply. Without the central bank facilitating this process, the government would need to compete with private businesses to borrow in the market, and the government would likely only be lent money at higher interest rates. This is not beneficial to the economy and the public at large, but is benefits those nearest to the printing press, i.e. government, banks and debtors. The other economic purpose a central bank serves is to be the lender of last resort, to print money and bail out banks that should otherwise go bankrupt.
[The rand has] been a weakfish currency − it’s slipped over the years against dominant currencies like the euro and the dollar but it’s not particularly serious.
The Rand has slid by 89% since 1998 against gold. Leon feels this is not “particularly serious.” I disagree, the slide of the Rand is very serious, seeing as a weakening currency created by monetary inflation of a central bank creates income inequality, as well as the very destructive business cycle and also capital consumption over time. This is what is leading the SA economy down a path of ruin.
It hasn’t been the subject of considerable manipulation like, for example, the United States and quantitative easing, which really means printing money to help the government out of the mess it created. We have not had that problem in South Africa.
Just last week I posted the chart of the amount of base money the SARB has printed and the extent to which the SARB has boosted its balance sheet through QE, more aggressively than the US Federal Reserve. While the SARB might not be buying SA government bonds with the newly printed money (SA banks are doing that for them), the SARB is buying US government debt, in the process propping up the dollar.
It’s been more responsible than most but we still should not have a central bank.
While Leon does great work in promoting freedom and individual liberty on other issues, when it comes to diagnosing monetary policy and the effects thereof, Leon was not very good in this interview. Leon, you are being way too easy on the SARB here.
h/t Simon Watson