BUSINESS MAVERICK: SARB’s Kganyago injects some reality into the concept of ‘magic money’

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South African Reserve Bank Governor Lesetja Kganyago has a message for the bond markets, economists, policymakers, the RET gang and the wider public. South Africa does not have ‘magical’ sources of money. He is not about to wave a wand, intone ‘Abracadabra’ and embark on a bond-buying binge that will miraculously save the economy.

Reserve Bank Governor Lesetja Kganyago made his remarks on Thursday, 18 June in an online Zoom lecture to the Wits School of Governance. Kganyago is always a straight talker and, seated in his study which has served as his backdrop for the past three months, he came out swinging. The lecture was titled: “The South African Reserve Bank, the coronavirus shock, and ‘the age of magic money’.

“The proposals on the table for more bond buying are not modest. I have seen one call for a trillion-rand fiscal stimulus financed by the SARB, and another for SARB bond purchases of R10-20-billion per week to continue until ‘economic recovery is well underway’. These numbers imply that the SARB would be buying, more or less, all new debt for the foreseeable future. Such interventions would crowd pension funds and other institutional investors out of the bond market,” he said.

The governor also noted that well before the current pandemic, South Africa was getting poorer. He did not say so explicitly, but this is one of the many legacies of the ANC under Jacob Zuma. “This has been the exact situation of major advanced economies for much of the past decade, and it has given these central banks almost unlimited scope to buy assets. Given this extraordinary situation, one economist has described this as ‘the age of magic money’,” the governor said.

 

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