SANE Views

Vol.7 No.13, 31 May 2007

Reserve Bank needs urgent transformation

Yaj Chetty

Board member, South African New Economics (SANE) Network

The upper margin of the infamous inflation target has been breached largely due to escalating food and oil prices and once more we can expect our governor of the Reserve Bank to announce further interest hikes to bludgeon us mere mortals with this bluntest of instruments. How on earth does one reduce the rate of inflation when the cost of capital is raised even further, stifling productive economic growth and exacerbating cost –push inflationary pressures on business. What happened to all the talk of raising the reserve ratios of the banks in order to curb rampant and indiscriminate credit extension? Surely this would be a more desirable way of controlling inflation by making banks much more cautious and discerning in the way they issue loans and thereby inflating the money supply.(by a multiplier effect)

The general public including our politicians are quite ignorant of how easy it is for banks to create loans under our fractional reserve banking system. Quite clearly this inordinate power the banking system has needs to be regulated by a reformed Reserve Bank whose independence both from government and the private banks is protected by the Constitution. Such a transformed Reserve bank would have a monetary policy committee comprising financial elders of the highest integrity who have no vested personal interests other than the interest of the public and the common good unlike the largely privatised nature of the current SARB.

We as a society will have to face very soon the geophysical reality of the imminent peak and irreversible decline of crude oil extraction on a global level- a phenomenon commonly known as peak oil. This would mean ever rising crude oil prices and rising inflation and food prices. Will the SARB continue to raise interest rates continually in a futile attempt to curb inflation and bring economic growth to a grinding halt? This is the conundrum we face because we have a financial/ debt-based monetary system that is so dependent on exponential growth on a planet with finite fossil fuel resources and finite biosphere. Surely, then we need far-reaching monetary financial reform to achieve a steady-state economy that does not deplete our resources and destroy the environment so rapidly, endangering our very existence. With enough political will we do have the intelligence and ingeniousness as a species to achieve this. For more information please check sane.org.za and www.aspo.org.za

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The South African New Economics Network (SANE) is an autonomous Network for the creation of a more humane, just, sustainable and culturally appropriate economic system in South Africa. It challenges the way prevailing economic thinking (old economics) has tended to reduce people to economic agents, the environment to property, social institutions to markets, and progress to growth in production. SANE advocates alternative economic theories (new economics) which are more purposefully designed to promote social equity and justice, community self-reliance and ecological sustainability.

Patrons: Archbishop Njongonkulu Ndungane, James Robertson (UK), Sheena Duncan, Gordon Oliver

South African New Economics Foundation (SANE)
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Web site: http://sane.org.za