South Africa Reserve Bank

South Africa Reserve Bank

The South Africa Reserve Bank (SARB) is the central bank of the Republic of South Africa. The bank has a responsibility to maintain price stability, which, in turn, cultivates and supports balanced, sustainable economic prosperity for the people of South Africa.

The bank works in consultation with the relevant cabinet ministry in order to deliver on its mandate.

SARB is one of the most influential central banks in the world. It was Africa’s first central bank and practically the first one to be established outside the Western World.

While its establishment was modelled according to the Bank of England, the SARB is privately owned.

Still, the bank is fully autonomous, with its independence entrenched in the country’s constitution.

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History of the South Africa Reserve Bank

The SARB was established on the 30th of June 1921, becoming the first central bank in Africa. The need for a central bank was rather imminent, with the conclusion of World War I having destabilized monetary and fiscal conditions throughout the world.

The SARB has a unique status in South Africa but it was not the country’s first financial institution to offer banking services.

That honour goes to Lombard Bank that started offering formal banking services in Cape Town on the 23rd of April 1793.

While underlying global economic conditions sped up the implementation, calls for a central bank in South Africa were heard as early as 1879.

It was in March 1920 that a 10-member select committee was established to look into the feasibility of having a central bank in South Africa.

The recommendations of this committee formed the basis of the establishment of the SARB, and by April 1922 the bank had already started issuing its first banknotes.

SARB Governance

The SARB is headquartered in Pretoria, South Africa. As mentioned, the bank is privately owned, and currently has over 2 million outstanding shares and over 783 shareholders.

Over 90% of the shareholders are based locally. Nevertheless, the stockholders have no influence in the selection of SARB governors or on the delivery of its underlying constitutional mandate.

The SARB is governed by a 14-member board: 1 governor, 3 deputy governors, 3 directors that are directly appointed by South Africa’s president as well as 7 other members that represent the biggest economic industries in the country.

The SARB adopted a three-tier governance structure to help it to perform its responsibilities to the people of South Africa. All levels have defined roles and responsibilities as follows:

  • Governor’s Executive Committee (GEC)
    SARB’s executive authority lies with the GEC, which is the overall decision-making committee of the bank.
  • Reserves Management Committee (REMANSCO)
    REMANSCO works according to the vision outlined by the GEC. This committee is responsible for making sound decisions and policy on SARB’s investments, which it holds in trust for the people of South Africa.
  • Financial Markets Department (FMD)
    The FMD implements the resolutions of REMANSCO. It is mandated to perform according to principles of internal sound governance.

Roles and Functions of the SARB

  • Price Stability – The SARB has adopted an inflation-targeting framework that seeks to keep inflation in check and to guide future monetary policy decisions. The SARB has sought to keep inflation below 2% and it uses medium-term inflation forecasts to guide its monetary policy decisions.
  • Monetary Policy – The SARB is responsible for formulating and implementing monetary policy, which includes setting interest rates or participating in the Forex market to ensure that the value of the South African rand (ZAR) is in tandem with the bank’s monetary environment targets.
  • Note Issuance – The SARB is tasked with issuing and distributing banknotes and coins that serve as legal tender both in the South African and international jurisdictions.
  • Asset Management – The SARB manages South Africa’s official Gold and Forex reserves.
  • The SARB is the official banker of the South African government, supporting major services such as social security.
  • The SARB is tasked with ensuring a fully functioning National Payments System that facilitates seamless financial transactions throughout the country and internationally.
  • The SARB is solely responsible for administering South Africa’s remaining exchange protocols.
  • The SARB acts as a lender of last resort in exceptional circumstances such as when there is a threat of financial system collapse.

SARB in Fundamental Analysis

The SARB is an important global central bank because it practically represents Africa’s most developed economy. In recent years, the SARB has utilized interest rates as the most powerful tool in its arsenal to achieve its monetary and fiscal objectives. Changing interest rates impacts different asset classes as follows:

Stocks

Cutting interest rates encourages borrowing and spending in both businesses and consumers. This usually leads to higher stock valuations. In contrast, hiking interest rates usually pressures stock prices lower.  

Bonds

The impact of interest changes on bonds is similar to that on stocks. Lower rates inspire higher bond prices whereas higher rates trigger lower bond prices.  

The South African Rand (ZAR)

The ZAR is one of the most popular exotic currencies in the Forex market. An interest rate hike usually inspires higher ZAR prices because it limits the supply of the currency; while a rate cut triggers lower ZAR prices because it fundamentally increases the supply of the currency.

Gold

South Africa is one of the world’s biggest and most important producers of Gold. Over the years, the precious yellow metal has adopted a positive correlation with the country’s local currency, the Rand. Using correlation-based strategies in accordance with proper fundamental analysis can provide means for hedging your investments.

** Disclaimer – While due research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

South African Reserve Bank main FAQs

  • What does the South African Reserve Bank do?

    The primary function of the South African Reserve Bank (SARB) is the formulation and administration of monetary policy in South Africa. The primary objective of this monetary policy is to control inflation, ensuring it remains low and stable. The SARB also works to ensure the efficiency of the financial system in South Africa, issues physical currency, and educates and informs the citizens of South Africa regarding the economic situation and monetary policy of the country. The SARB is charged with restoring financial stability if there is a systemic disruption of the financial system, as well as supervising and regulating financial institutions and markets in South Africa.

     
  • Who owns the South African Reserve Bank?

    The South African Reserve Bank is one of the few central banks in the world that is privately owned. It has always been privately owned and as of February 2020 there are roughly 2 million outstanding shares and 783 shareholders. The vast majority of the shareholders are South Africans, although 8% are foreigners, with the majority being Germans. The bank’s shareholders have no influence over the selection of the governor or deputies, and no influence over monetary policy. Since 2018 there has been a movement in the South African Parliament to nationalize the central bank, and while the current president agrees that the bank should be nationalized, he doesn’t believe it is appropriate at this time due to the projected cost to taxpayers.

     
  • Why is the South African Reserve Bank important?

    While the SARB is responsible for creating and implementing monetary policy, they have no mandate to support economic growth or employment, which has caused some to question the importance of the central bank to the South African economy as a whole. The current responsibilities of the SARB include maintaining inflation in a range of 3% to 6% in the consumer price index, and the oversight and regulation of consumer banks. It has the power to change interest rates and thus impact inflation in South Africa. And while they have no mandate to support economic growth and employment, they do so anyway through their implementation of monetary policy.

     

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