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  • South African Reserve Bank independence:the debate revisited
  • Vishnu Padayachee (bio)


In the early 1990s, during the negotiation phase of South Africa’s transition to democracy, there was debate in some academic and policy circles about what the status of the Reserve Bank should be in a post-apartheid South Africa (see eg MERG 1993). Since its establishment in 1921 the SARB was both legally and practically subordinate to the Ministry of Finance and to the government of the day. It fact it was widely believed that the Presidency under PW Botha intervened directly over monetary policy decision-making for political ends as illustrated by the ‘infamous’ Primrose by-election on November 29, 1984) (see Rossouw and Padayachee 2011:S60-61).

It would appear that the ANC political leadership at the World Trade Centre (WTC) negotiations requested the ANC’s own economic think tank, the Macroeconomic Research Group (MERG), to assist it in making a recommendation about the status of the SARB (most importantly about the form and degree of its independence) for its consideration and then to debate with its main political opponent, the National Party, then still in government. MERG co-ordinator, Vella Pillay, requested Cyrus Rustomjee and Vishnu Padayachee, both at the time researchers in the MERG project, to draw up a memorandum on this matter. The authors had one weekend to research and write up this paper, which they did in Word Perfect on a 286 personal computer in the home of Cyrus’ parents in Reservoir Hills, Durban.

That document, not previously published, appears after this introductory contextual note. Our recommendation, that the SARB be made subordinate to the National Treasury, and the case for this, was either not considered or it was rejected at the negotiations. In the end the SARB was granted full, [End Page 1] constitutional independence.

I argue here that it may be worthwhile to revisit these debates in the context of South Africa’s poor economic performance since the mid-2000s. While I see no value, and only potential loss of credibility, in reversing the constitutional independence of the SARB, there may be some value in debating whether or not ownership of the SARB should be transferred to the democratic state. Recall that most independent central banks are also state-owned entities so there is nothing exceptional in this proposal. While such a step (call it nationalisation, if you will) would not automatically democratise and re-align decision making on monetary policy within a broader developmental framework, it may open up the space for a thorough discussion about matters of private shareholding, governance and some operational issues, such as the prudence of maintaining an exclusive inflation target mandate, as well as the role, composition and transparency of the Bank’s monetary policy committee.

So what happened at the negotiations?

Some within the ANC alliance had argued against the global trend, evident since 1989, of gradually increasing the autonomy of central banks. Thus, for example, the ANC’s own economic think tank, MERG, in its report published on December 3, 1993, argued (largely in line with the Rustomjee and Padayachee recommendation) that ‘the independence of the Reserve Bank … which divests the elected government of significant economic powers, is not a sound way to build international confidence in South Africa’ (MERG 1993: 262) and it called for the subordination of the Reserve Bank to the Ministry of Finance (1993:264).

The MERG proposal on the future of the SARB was first publicly presented at the Oliver Tambo Memorial Lecture on November 5, 1993 and according to Bond (2000:75) it was rejected by ANC Department of Economic Planning (DEP) deputy head, Tito Mboweni, ‘a few hours later’. Bond goes on to note that the DEP decision in favour of full independence was nevertheless reversed at the National Executive Committee of the ANC a few days later, at which meeting it was apparently agreed to make the Bank ‘subject to the powers of parliament’ (Bond 2000:76). However, independence was granted in terms of the interim 1994 Constitution and confirmed in 1995 during a parliamentary debate over the final constitution, and this view was enshrined in the final 1996 Constitution, though with minor...


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