The instances of historical societies and civilisation crumbling under the weight of hyperinflation are numerous – as are modern examples. South Africa has thus far been spared this fate, but this has been a political decision rather than an institutional guarantee. The Government of National Unity (GNU) has an opportunity to entrench it.
This is among the low-hanging fruit that the so-called “constitutionalists” in the GNU – as opposed to the “radicals” and “breakers” in the Progressive Caucus – could implement during the coalition’s term in office.
Liberty First
The Free Market Foundation (FMF)’s fifth and final – for now – policy recommendation to the GNU as part of our Liberty First initiative therefore concerns “Sound Money”.
This category of reform, like the others – Free Trade, Size of Government, Regulation, and Legal System and Property Rights – corresponds to the Fraser Institute’s Economic Freedom of the World annual report, which shows with little room for doubt which policies produce prosperity.
David Ansara, FMF CEO, is the author of this week’s report, which deals with Reserve Bank reform and monetary freedom, or the allowance of cryptocurrencies.
Reserve Bank
Ansara explains that there has, over the past 30 years, been a high degree of respect for the independence and integrity of the Reserve Bank in South Africa, but that this is far from a given. The “consultation” between the National Treasury and the Reserve Bank could turn into “co-ordination” on a political whim, especially when the incumbent government desires expansionary monetary policy.
The example of the captured Judicial Services Commission is appropriately utilised, where the outsized political representation on the body has meant that judges are not interviewed or measured on the basis of their jurisprudence or professionalism, but their dedication to state ideology and the objectives of the incumbent government. Ansara also notes how both the Revenue Service and the National Treasury were captured during the Jacob Zuma presidency.
This could easily happen to the Reserve Bank if steps are not taken to protect the institution. Indeed, the Economic Freedom Fighters (EFF) in particular, and the African National Congress (ANC) to a lesser degree, have over recent years indicated their desire to utilise the Reserve Bank for partisan political ends.
The FMF makes three recommendations in this respect:
- Amend the Reserve Bank Act to strengthen the emphasis on the Bank’s core mandate to protect the value of the currency, even if that comes at the expense of other concerns of public interest;
- When appointing members to the board of the Reserve Bank, the President should favour those candidates who prefer a clear, rules-based approach to monetary policy, which limits the discretion of the Monetary Policy Committee to provide greater predictability and trust to economic actors; and
- Amend the Reserve Bank Act to create additional degrees of separation between the Bank and the executive.
Contrary to popular belief, the Reserve Bank is not “privately owned.” It is an organ of state – a constitutional institution – and a creature of statute that is governed and managed in terms of that statute.
That there is “private shareholding” at the bank is ultimately superficial, as the politically appointed officials at the Reserve Bank make the decisions. Yet, this notion of the Reserve Bank being private is used as the justification to “nationalise” this already nationalised entity. In fact, what “nationalisation” means in this context is not “changing the ownership of the institution” but rather “taking off the institutional guardrails” to enable reckless monetary policy.
Having seen what reckless monetary policy in Zimbabwe, right on our northern border, can do to a society, South Africa best take precautionary steps. If that does not happen under the GNU – where all the coalition partners nominally support Reserve Bank independence – it would be a massive missed opportunity.
Cryptocurrency
But there is even more that can be done by the GNU to help South Africans protect the value of their money and savings.
“Unlike fiat currencies, which are the creations of national governments, Bitcoin is an entirely decentralised peer-to-peer digital payment system and currency,” writes Ansara.
This cryptocurrency is universally accessible and usable by anyone with an internet connection. It is also “immune from the temptations of rampant money printing.” Bitcoin is decentralised and immutable, leading Ansara to argue that “Bitcoin is the first property right in history that is not dependent on the state’s monopoly on violence. It represents no less than the separation of money and state, with profound implications for monetary freedom.”
Bitcoin has helped thousands around the world – for good and ill – avoid government censorship, control, and coercion. Not even outright bans of cryptocurrency by governments have succeeded in stopping their use.
Governments around the world – both autocratic and democratic – have used their regulatory authority over banking systems to silence dissent (a favourite activity of Russian dictator Vladimir Putin) and to silence powerful protests against state overreach (something Canadian’s Justin Trudeau wielded against truckers in 2022).
Those with Bitcoin have been able to leverage it to stateproof themselves against this kind of abuse.
While the adoption of this technology is still in its relative infancy, the FMF has recommended that the GNU not try to swim against the current and try to regulate the unregulatable, but rather “provide legislative clarity on the status of cryptocurrencies such as Bitcoin as legitimate mediums of exchange” and that it “revoke any provisions that constitute unreasonable and onerous burdens on the market.”
Ansara further writes that “South Africa should also follow in the footsteps of El Salvador and make Bitcoin legal tender.”
Can it be any more obvious for the GNU?
Reckless monetary policy is the kiss of death for any society. It should be a no-brainer that the GNU – we are told, comprising “constitutionalists” and “moderates” – can and should take steps to insulate South Africa’s present and future from such a fate.
For as long as governments are able to easily devalue the money of the citizenry from afar, “economic freedom” is nothing but a nice idea. The Reserve Bank and South Africa’s monetary infrastructure should be fortified, and South Africans should be encouraged to stateproof themselves and their finances against the potential of abuse.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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