SANE Views

Vol.2 No.9, 11 April 2002

Reform of the Rand

In SANE Views Vol.2, No.4 (24 January 2002), the Myburgh Commission into the collapse of the Rand was evaluated. It was pointed out that its mandate was too narrow, that the Rand's troubles were not simply the result of speculation by some guilty party. It was the fundamental socio-economic weakness of South Africa and mismanagement by the monetary authorities which lay at the root of the collapse.

The South African economy is not the only one in distress. The economy of New Zealand, amongst many other national economies, has also been the victim of the globalised free market policies of the so-called 'Washington Consensus' ideology. In a response to the stresses this has imposed, the Reserve Bank of New Zealand set up a commission to review its 'Operation of Monetary Policy'. Independent submissions were called for.

One of the submissions was by Lowell Manning. He is a founder member of the UBINZ (Universal Basic Income New Zealand). He has tertiary qualifications in economics and civil engineering. Boudewijn Wegerif, a regular contributor to SANE ideas, passed on extracts from this submission to us. New Zealand's plight appears very familiar to us here in South Africa.

Six primary instruments of monetary policy and some extracts from his submission are set out below:

A universal basic income, as a national dividend payable to every citizen regardless of means and income;
A commitment to building up a strong network of local exchange currencies;
The adoption of measures of economic and cultural wealth (i.e. not GDP -ed) that are appropriate to the drive for sustainable living standards.
Tax reform, including a domestic transactions tax, by which collection will become automatic, almost costless, and strictly neutral;
A debt and interest-free public service money supply, linked to fundamental reforms of the banking system, and the encouragement of local exchange currencies;
A commitment to zero-balance national current accounts through a judiciously applied foreign exchange transactions surcharge.

These six policies are very similar to SANE's 'Six Pillars of Sustainability' (see SANE Views Vol.1, No.1, 2001).

Below we quote extracts from the report:

"Each of the six policies is a powerful stand-alone policy, but the sum of the six is vastly more powerful than the sum of its parts. For example, policy 1 is hard to introduce without policies 4 and 5. While universal income is now being very widely discussed around the world (e.g. the BIG in South Africa - ed.) I believe my proposal is the only one so far that provides seamless integration with existing 'social welfare' and the ability to fund it properly without significant tax increases.

"The present monetary policy is based on fallacy. I am not suggesting any malice on the part of past governments, the Reserve Bank or their advisors, but I believe the country cannot progress while its monetary policy is operated on the basis of denial.

In New Zealand, as elsewhere, nearly all money is created as interest-bearing debt. Taken as a whole, the interest charges on that money can only be funded through the creation of further debt. .... In this process real wealth is transferred .... to the rich from the poor.

The money supply therefore has to increase exponentially to accommodate the interest payments. .... This means the debt system is inherently inflationary.

The use of high interest rates to 'kill' inflation is the absolute diametric opposite of any coherent anti-inflation policy. High interest rates increase inflation by an amount equal to the interest rate rise minus any productivity increases squeezed out of an ever more oppressed productive sector.

Inflation is 'wrung' out of the economy by killing the patient to cure the cold, using the price mechanism to decrease the demand for new money essential to maintain, let alone increase economic activity.

The 'free trade' agenda encourages cheap imports to mask the inflationary pressure, initiating balance of payments problems, which are partly offset by seeking foreign direct investment (mainly through the sale of New Zealand's land assets and citizenship).

Some of our productive companies have moved offshore. We are suffering a chronic 'brain-drain' as qualified people leave for greener pastures abroad.

The true underlying inflationary effects arising from the monetary system itself (are masked by) the sale of the nation's assets into overseas ownership, the repatriation of medium-term foreign direct investment and the unilateral reduction of trade barriers.

Under current monetary policy, the likely course of (events) is to join the well documented Third-World 'export' trade treadmill whereby an ever-increasing proportion of our total production is sent offshore in an impossible effort to 'pay our way' in the world, while the quality of life of our citizens steadily declines.

Trade is a zero-sum game. The more we are forced into supplying overseas markets for the sole purpose of closing our trade gap, the more we are forced into ever-increasing competition with other countries, with a consequent reduction in our terms of trade.

Perhaps the greatest single instability factor .... is currency speculation, the dissociation of financial transactions from the real economy. In New Zealand something in the order of 99% of all financial transactions are speculative.

The 'market' is dominated by speculation because there are few if any controls on the quantity or flow of money."

Does all this sound familiar to South African ears?

For further details on UBINZ or on Lowell Manning's submission write directly to him at [email protected] .or visit www.geocities.com/ubinz/Lowell Manning.html . If you are subscribed to the SANE Forum, you can put forward your ideas relative to South Africa to [email protected] for discussion with other forum members.