Tag: Reserve Bank

By Alexander Winning, Olivia Kumwenda-Mtambo and Tom Arnold for Reuters

The rand plummeted to R15,12 against the dollar last week after a row between an arm of the ANC and the Reserve Bank.

The row was about the role of the country’s central bank, the South African Reserve Bank. It is unnerving investors because it is being driven by bitter factional battles rather than sober policy debate.

The conflicting policy views came as a fresh blow to the economy, after political uncertainty, increasing living costs and decreased investor confidence have ravaged the market.

Broadening the South African Reserve Bank’s remit to promote jobs and growth as well as taming inflation would not be seen by analysts as a problem per se, given other central banks including the U.S. Federal Reserve have similar dual mandates.

The worry is that the push to change the bank’s mandate is coming from a left-wing camp within the ANC that wants President Cyril Ramaphosa to change tack on a range of policies – and is using the Reserve Bank as a battering ram, some ANC members say.

The damaging public row over the bank’s role comes at a time Ramaphosa is trying to build confidence in the economy by tackling long-standing issues such as inefficient state enterprises and corruption.

“This is about the internal politics of the ANC and the factions that are fighting for influence,” said Melanie Verwoerd, a former ANC lawmaker and political analyst.

The ANC is a broad ideological church that has governed South Africa since the end of white minority rule, but it is deeply divided over how to deal with the persistent poverty and unemployment that are hitting its support at the polls.

The row within the ANC surfaced on Tuesday when Secretary General Ace Magashule, part of a group of ANC leftists and populists, said the party had agreed to expand the central bank’s mandate to include employment and growth.

He also said the party wanted the government to consider quantitative easing, a policy widely used by developed economies after the global financial crisis to stimulate growth by pumping cash back into the economy.

Ramaphosa’s allies, including ANC economics chief Enoch Godongwana and Finance Minister Tito Mboweni, rubbished Magashule’s remarks. The ANC then issued a statement in Ramaphosa’s name on Thursday saying there had been no change in central bank policy.

But the South African rand tumbled, and has continued to fall, hitting its lowest level against the U.S. dollar since September 2018 on Friday.

Ratings risk

The more moderate ANC faction aligned with Ramaphosa has been forced to cede ground in several policy debates, including land reform, since the president took office in February 2018. The fear is the same could happen with the central bank.

The South African Reserve Bank has built a strong reputation for acting independently and there is a danger its credibility could be tarnished if the more hardline wing of the ANC forces it to adopt different policies.

The economic implications for South Africa could be significant if the change is rammed through in a way that shakes the confidence of the investors who fund the country’s twin budget and current account deficits.

If the central bank had to focus on growth and jobs over inflation, it would be more likely to keep interest rates low, which could in turn weaken the rand currency.

Only one global ratings agency, Moody’s, still gives South Africa an investment-grade rating, but it is hanging by a thread. Moody’s has said in the past that the central bank’s credibility is an important factor in its ratings decisions.

Moody’s declined to comment on this week’s row.

But if the very public ANC squabble pushed Moody’s to relegate South African debt to “junk” status, billions of dollars could leave the economy, analysts say.

Wayne McCurrie, portfolio manager at FNB Wealth and Investments, said Magashule’s comments brought to mind the money-printing in neighbouring Zimbabwe that led to hyperinflation.

“Zimbabwe’s Reserve Bank kept interest rates too low and used quantitative easing to buy government bonds when the government was running unsustainable deficits. That ended up in disaster,” McCurrie said. “Sustainable jobs cannot be created by the central bank and its policies.”

Still, even if agreement is reached within the ANC, changing the central bank’s mandate would be complex. It could require changing the constitution and amending the Reserve Bank Act.

But analysts say even an attempt to change the central bank’s role could torpedo hopes of an economic recovery.

“Even if nothing happens, the risk of fallout is high and so any recovery can be derailed,” said Peter Attard Montalto, head of capital markets research at Intellidex.

Ideological differences
Speaking privately, ANC members aligned with Ramaphosa say the Magashule-led group is using the debate over the central bank to stymie the president’s agenda.

The more attention Ramaphosa has to pay to party squabbles, the less time he can devote to fighting corruption and pursuing reforms which could hurt his opponents’ interests, they say.

Members of Magashule’s camp say there is significant support in the party for the central bank taking a more active role in stimulating the economy.

Some who want the central bank to change see it as a bastion of white privilege that hasn’t done enough to help the economy more than two decades after the end of white minority rule. They also accuse Ramaphosa of cosying up to business interests.

“We are a developmental state. The central bank should also play a developmental role,” one source told Reuters.

Magashule did not respond to a request for comment.

The idea of a central bank more focused on job creation resonates with important ANC allies such as the South African Communist Party, which has publicly endorsed Magashule’s message, and labour unions frustrated at losing members through job losses in sectors such as mining.

Ramaphosa has supporters from across the political spectrum, so he has to be cautious in how he responds to the row.

Jan Dehn, head of research at emerging markets investment manager Ashmore Group, said it would be a mistake to change the South African central bank’s role for political reasons.

Though emerging markets-oriented asset managers aren’t expecting the mandate to be changed any time soon, they are monitoring the situation closely.

Other emerging market central banks such as in Turkey are regularly subject to political pressure, making investors wary of putting their money there.

“In the Turkish case the government has always focused on growth and doesn’t see a trade-off between growth and inflation,” said Ferhan Salman, senior economist at Bank of America Merrill Lynch. “I don’t think Ramaphosa is of the same view.”

By Siviwe Feketha for IOL

Former president Thabo Mbeki has warned about the ANC’s call for the nationalisation of the SA Reserve Bank, saying it would not result in any material achievement. Picture: Dimpho Maja/African News Agency (ANA)
Johannesburg – Former president Thabo Mbeki has warned about the ANC’s call for the nationalisation of the SA Reserve Bank, saying it would not result in any material achievement.

Mbeki was speaking at the Gauteng ANC pavilion at the Rand Easter Show in Nasrec, south of Johannesburg, where he declared his intention to vote and campaign for the ANC in the upcoming election.

Since his defeat by his successor, Jacob Zuma, at the 2007 national conference in Polokwane and his recall by the party in 2008, Mbeki has not been active in ANC politics.

He said while he found it impossible to campaign for the party under Zuma due to wrongdoings, President Cyril Ramaphosa and his government demonstrated a commitment of addressing the party’s challenges.

“It is in that context that it becomes possible to come back and to be active publicly like this,” he said.

However, he criticised the party’s 2017 national conference resolution which called for the nationalisation of the Reserve Bank.

“I don’t know what anybody would gain by that nationalisation of the Reserve bank, except to say we have nationalised. Nothing would change in terms of the behaviour of the Reserve Bank, nothing,” Mbeki said.

He said while many in support of the move said they wanted the central bank to move away from inflation targeting, nationalising it would not result in policy change.

“Inflation targeting is not the decision of the Reserve Bank. It is a decision of the South African government. It is the government which said there must be inflation targeting and these are the targets between three and six percent. That is government and the Reserve bank implements,” he said.

By Jamie McKane for MyBroadband

The South African Reserve Bank has published a consultation paper on policy proposals for cryptocurrency assets, detailing its recommended regulatory approach to Bitcoin and other tokens in South Africa.

This paper currently only offers recommendations and is open to comment from the public until 15 February 2019.

The Intergovernmental FinTech Working Group (IFWG), which includes members from Treasury and the SARB, formed a Crypto Assets Regulatory Working Group to construct recommendations for the regulation of digital assets in South Africa.

This consultation paper is a product of this working group, and addresses the possible advantages and disadvantages of cryptocurrency in a South African context – including its ability to be used for criminal activities and its impact on financial services.

“Upon conclusion of the consultation phase, the regulatory authorities will specify the way forward through a policy instrument such as a guidance note or position paper aimed for first quarter of 2019,” the paper stated.

“The IFWG and Crypto Assets Regulatory Working Group is of the view that regulatory action should not be delayed until the most appropriate regulatory approach has become clear, but to rather act and amend as innovation evolves.”

Proposed regulations
The regulations proposed in the paper aim to help monitor the purchasing and selling of cryptocurrency, with a major focus on improving compliance with existing financial security legislation.

Under these new rules, all cryptocurrency asset trading platforms, custodial service providers, and payment service providers will be required to register with the IFWG and comply with AML/CFT provisions of the Financial Intelligence Centre Act.

These platforms include Bitcoin exchanges, trading centres, and cryptocurrency ATMs.

Additionally, the government recommends that cryptocurrency service providers monitor user transactions – especially large transactions which may be linked to terrorist activity.

Regulatory authorities did add that they would not impose any market entry conditions for registered entities.

Where companies and service providers do not comply with these requirements, the government recommended that administrative sanctions be imposed.

The Crypto Assets Regulatory Working Group said it would continue monitoring the state of the cryptocurrency market, especially businesses and users situated in South Africa.

By Roxanne Henderson and Antony Sguazzin for Business Day

The Reserve Bank has written to the National Credit Regulator requesting a probe of loan-origination fees charged by Capitec, according to a person familiar with the matter.

The referral came after the issue was raised in a report by short-seller Viceroy Research in January, said the person, asking not to be identified because the matter is private.

The investigation is ongoing, the person said.

On Tuesday, Capitec shares were trading down 1.9% at R870.89 at 9.05am on the JSE.

Capitec chief financial officer Andre du Plessis said he was unaware of the central bank’s referral, or of an investigation by the Johannesburg-based credit watchdog.

In the report, Viceroy said Capitec’s income was boosted by excessive fees on its multiloan product, which carried a monthly charge for allowing a previously vetted customer to extend their facility by answering some questions.

While Capitec said it terminated the product in 2016 — after rules introduced by the NCR meant it was no longer viable — Viceroy said the lender rebranded it and that Capitec’s methods risk over-indebting consumers.

Capitec denied this, saying Viceroy did not understand how the product or its processes work.

The NCR had previously probed the multiloan facility and was satisfied with the fees and interest charged, Capitec said on February 8.

‘Very active’

Both the Johannesburg-based NCR and Pretoria-based central bank declined to comment.

The central bank monitors lenders for their compliance with rules ranging from their operations and capital levels to staffing and money laundering, with the ability to fine companies or revoke their licenses. The NCR can also administer financial penalties on lenders which violate the National Credit Act, legislation aimed at protecting consumers from becoming over-indebted.

Officials from the central bank and the NCR told MPs in March that many of the allegations made by Viceroy were not new and that not all of them were accurate.

“The Reserve Bank is very active in doing ongoing reviews at all the banks,” said Du Plessis, speaking more broadly on the regulator’s oversight. “If anything bothers them, they actually contact us or ask that we report on something. That happens on an ongoing basis.”

On Friday, Capitec announced it had reached an agreement with Summit Financial Partners, which was challenging the lender in court and before the NCR on behalf of six complainants.

The cases, which mostly centred on Capitec’s now defunct multiloan facility, were withdrawn.

Capitec’s stock has declined 19% this year, more than any of the other lenders on the six-member FTSE/JSE Africa banks index, which is down 5.6%.

Reserve Bank trials blockchain successfully

By Hanna Ziady for Business Live 

Payments between SA’s banks, averaging R350-billion daily, can be settled using blockchain technology, tests demonstrate.

“Project Khokha”, whose results the Reserve Bank announced on Tuesday, successfully trialled interbank settlements using distributed ledger technology (DLT), of which blockchain, the mainstay of cryptocurrencies such as bitcoin, is one type.

Distributed ledgers use independent computers to record, share and synchronise transactions in online ledgers, without the need for an independent third party to verify those transactions. DLT could “fundamentally change the financial sector, making it more efficient, resilient and reliable”, according to the World Bank. In the long term, it could usurp a large portion of the work performed by trusted intermediaries such as banks and clearing houses.

DLT developments

Central banks around the world, meanwhile, are grappling with the implications of financial technology (‘fintech’) for financial markets and their supervisory roles in those markets. That Project Khokha has been a success puts the Bank at the cutting edge of developments in DLT, alongside the likes of the Bank of Canada and Singapore’s central bank.

The trial was designed, built and executed in three months. Key role-players included the Bank’s fintech unit, established in August 2017, and SA’s six biggest banks, as well as newcomer Discovery Bank.

The results show that the typical daily volume of SA’s payments system, averaging R350bn, could be processed on a distributed ledger in less than two hours with full confidentiality of transactions.

This has considerable implications for future applications of blockchain technology in SA. Future “blockchain experiments” might involve other central banks on cross-border payments, said Bank governor Lesetja Kganyago.

The Bank had “pushed the envelop in a number of ways” on the project, said Peter Munnings, technical lead of enterprise delivery at New York-based ConsenSys, a blockchain software technology firm and the Bank’s technology partner.

“There are many issues to consider before the decision to take a DLT-based system into production can be taken,” the Bank said.

“Some of these issues relate to the practicalities of implementation, but also to legal and regulatory factors, and to the broader economic impact.”

One of the objectives of Project Khokha was to better understand how the South African Multiple Option Settlement (SAMOS) system would integrate with a DLT system. SAMOS is the current interbank settlement system provided by the Bank, allowing banks to settle their obligations in real-time.

Reserve Bank fines two banks R77.5m

By Sibongile Khumalo for News24

The South African Reserve Bank in 2017 imposed a total of R77.5-million in administrative fines to China Construction Bank and VBS Mutual Bank for failure to comply with the Financial Intelligence Centre Act.

The Bank Supervision Department annual report released on Tuesday indicated that the banks were penalised for “not identifying and verifying their customers’ details, not keeping records of customer identification, inadequate controls and working methods pertaining to the reporting of suspicions transactions”.

The heaviest fine of R75m was given to the Johannesburg branch of China Construction Bank Corporation – R20m was suspended for a period of three years.

The Venda-based VBS bank, which made headlines in 2016 when it granted former president Jacob Zuma a R7.9m loan for his Nkandla home, was fined R2.5m, of which R2m was suspended for a year.

The Reserve Bank last year placed VBS under curatorship, as details of its financial management came to light.

The report stated that the decision to impose the sanctions was not based on any evidence that the banks had “facilitated transactions relating to money laundering and/or the financing of terrorism”.

Illegal schemes

It revealed that its assessment of financial institutions showed that banks still needed to strengthen their controls when it comes to compliance with the FIC Act.

Compliance with Pillar 3 disclosure system, which require banks to publish easily accessible information that reflects their financial conditions, performance, risk exposure and corporate governance policies and policies was also a key area of focus.

During the 2017 period, a total of 28 illegal deposit-taking schemes were under review, 21 of them were carried over from the previous years, while 7 were new investigations. There are currently 19 schemes still under investigation, slightly higher than the 21 cases in 2016.

The bank said the regulation of schemes was done to ensure “the safety and integrity of the banking system and to protect the general public”.

Market uncertainty

According to the report, macroeconomic conditions continue to be unsupportive of meaningful and robust growth in credit extension, as appetite for household credit also remains sluggish.

Credit extension to the corporate sector grew modestly.

“Although household debt metrics continue to show signs of improvement, household debt remains persistently high.”

The report also noted that market uncertainty was seen throughout the year, both at global and domestic level.

The rand weakened over the period by 1.3%, and bonds also weakened with the depreciation of the currency.

Hapless Public Protector loses SARB ruling

The legitimacy of the Public Protector’s office and her reputation may be damaged if she takes a dismissive or procedurally unfair approach as she has done in the matter regarding the South African Reserve Bank (SARB), Judge John Murphy said.

The judgment, delivered on Tuesday by Justice Cynthia Pretorius on behalf of Murphy, sets aside Public Protector Busisiwe Mkhwebane’s remedial action.

According to a report issued by the Public Protector’s office in June, which was based on an investigation into the apartheid-era Bankorp bailout, Mkhwebane ordered that the Reserve Bank’s constitutional mandate to protect the currency be changed instead to ensure the socio-economic well-being of citizens and the achievement of socio-economic transformation.
Mkhwebane also ordered the Reserve Bank and the chairperson of the portfolio committee on justice and correctional services to submit an action plan before August 18. This has also been set aside.

In his judgment, Murphy said that it is “disconcerting” that Mkhwebane seems “impervious” or “disinclined” to address criticism of her conduct during the investigation.

Murphy acknowledged that the Public Protector has a difficult task and is expected to deal with complex and challenging maters with limited resources and without the “benefit of rigorous forensic techniques”. This would make it easy to make errors in informal alternative dispute resolution processes.

But Murphy added that the Public Protector is the “constitutionally appointed custodian” of legality and due process in the public administration. “She risks the charge of hypocrisy and incompetence if she does not hold herself to an equal or higher standard than that to which she holds those subject to her writ,” he said.

“A dismissive and procedurally unfair approach by the Public Protector to important matters placed before her by prominent role players in the affairs of state will tarnish her reputation and damage the legitimacy of the office.”

Murphy said the Public Protector should reflect “more deeply” on her conduct during this particular investigation, and she should consider the criticism made by the SARB and Parliament.

Professor Jannie Rossouw, head of the Wits School of Economic and Business Science, said that if the matter had gone any other way, it would have been a “constitutional crisis”. “From that perspective it is a very positive judgment,” he said.

‘Maybe she should just resign’

The judgment also raises questions on whether Mkhwebane is fit to hold office, he said. “Maybe she should do the honourable thing and just resign.”

Econometrix chief economist Dr Azar Jammine said the ruling may have damaged the image of the Public Protector, and that some may argue that her days are numbered. He said the ruling showed the strength of South Africa’s institutions and the judiciary.

A different judgment would not have been viewed favourably by ratings agencies, he said.

By Lameez Omarjee for News24

The South African Reserve Bank held interest rates steady‚ as widely expected‚ on Tuesday‚ at the monetary policy committee’s first meeting of the year.

While economists have cautioned against calling an end to the tightening cycle and the start of lower interest rates — especially after consumer inflation came in at 6.8% last week — they did not expect an increase.

Tuesday’s decision left the repo rate unchanged at 7%. The Bank has raised rates by 75 basis points since the start of 2015‚ and by 200 basis points since January 2014. The last rate increase was 25 basis points in March 2016‚ and followed a 50-point rise in January 2016.

Source: www.timeslive.co.za

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