I am sincerely hoping that stupidity is not like Corona and catching…
THIS was tweeted by Nelson Mandela Bay Municipality Mayoral Committee Member, Andile Lungisa with reference to President Cyril Ramaphosa announcing that SA will need R500 Billion to finance the lockdown crisis:
“President Ramaphosa spoke so well and outlined a clear plan of action for our country.He is supported. My only request to the President is to order the Governor of our Reserve Bank to Print the 500 billion instead of borrowing from IMF,World Band and other financial corporations.”
Things to be thankful for include the fact that Lungisa is not seen as a major heavyweight when it comes to fiscal policy so his utterances did not have an impact on our Foreign Exchange rates as in June 2019 when the rand whipsawed amid confusion over whether the African National Congress was pushing to change the central bank’s mandate and to use the institution to rescue state-owned companies.
Things to be worried about include the shocking number of people that expressed LOVE for Andile’s utterances, who RETWEETED and COMMENTED….
Simply put, the answer to the question; “Why can’t countries print more money to get out of debt” is: Printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. In a simplified model, printing money will just cause inflation.
If a government prints money faster than the growth of real output it reduces the value of money and this invariably causes inflation. Governments often resort to printing money when they cannot finance their borrowing by selling bonds. This hyperinflation can be extremely damaging to an economy.
Money in South Africa is printed by the SABN – a wholly owned sunsidiary of the South African Reserve Bank. The South African Bank Note Company was established in 1958 as a result of a decision by the South African Government to print South African currency locally. The South African Reserve Bank formed a joint venture with Bradbury Wilkinson and Company and commenced production from a factory in Pretoria. Bradbury Wilkinson and Company’s shareholding was eventually taken over by the South African Reserve Bank.
The South African Reserve Bank (the SARB) is the central bank of the Republic of South Africa. The South African Reserve Bank has been entrusted with the overarching monetary policy goal of containing inflation. The Bank can use any instruments of monetary policy at its disposal to achieve this monetary policy goal.
Functions of the South African Reserve Bank:
- Formulating and implementing monetary policy;
- Issuing banknotes and coin;
- Supervising the banking system;
- Ensuring the effective functioning of the national payment system (NPS);
- Managing official gold and foreign-exchange reserves;
- Acting as banker to the government;But not owned by South African Government.
- Administering the country’s remaining exchange controls; and
- Acting as lender of last resort in exceptional circumstances.
All those lovely banknotes in your pocket represent the debt that the government (read: taxpayer or YOU) owes to the privately-owned Reserve Bank of South Africa.
When a country has its own national currency, this involves the issue of some form of standardized currency, which is essentially a form of promissory note: a promise to exchange the note for “money” under certain circumstances. Historically, this was often a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are fiat money, the “promise to pay” consists of the promise to accept that currency to pay for taxes.
South Africa was the first country in Africa to establish a Reserve Bank on 30 June 1921.
A Reserve Bank is also referred to as a Central Bank.
All Central Banks are required to hold a certain percentage of their assets as capital, a rate which may be established by the central bank or the banking supervisor. For international banks, including the 55 member central banks of the Bank for International Settlements, the threshold is 8% of risk-adjusted assets, whereby certain assets (such as government bonds) are considered to have lower risk and are either partially or fully excluded from total assets for the purposes of calculating capital adequacy. Partly due to concerns about asset inflation and repurchase agreements, capital requirements may be considered more effective than reserve requirements in preventing indefinite lending: when at the threshold, a bank cannot extend another loan without acquiring further capital on its balance sheet.
Alan Straton
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