Lesetja Kganyago will be remembered as one of the finest governors the Reserve Bank has had, and particularly for being ruthless about inflation.
But in the past year the Bank has started reaching beyond its brief. It is no longer content to set the rules of the game. Increasingly it appears to want to own the pitch, too.
For example, the Bank plans to pilot white-label ATMs from January, the first step towards turning all of South Africa’s more than 30,000 machines into a shared, unbranded network in which transactions below a set threshold are free.
Pradeep Maharaj, who heads the Bank’s payments modernisation programme, says it is asking all banks to take this step. The banks have put forward alternatives, and the Bank is due to respond in November, but its starting position is clear.
It wants a national cash utility by March 2027, which Maharaj says will be wholly owned by the Bank. It also wants to start bringing the cash centres that are run by the likes of SBV and Fidelity into the Bank by the middle of that year.
Cash is expensive, sure. The Bank’s own study puts its economic cost at R88.5bn a year, and the poorest customers pay the most: people earning up to R1,250 a month spend about 5% of their income on cash-related costs. Access is a real problem, too.
But ATMs are a product that banks compete with. They decide where to put machines, what to charge for using them and how to brand them. If the Bank thinks a retail bank’s fees are unfair, this can be taken up with competition and conduct regulators. If poorer areas are underserved, the answer is a targeted obligation, not a takeover of every machine in the country.
Direct intervention
Asking, and plainly expecting, every bank in the country to strip its name off its machines, while setting itself up to run the cash centres behind them, is a direct intervention in how private banks run their businesses.
In November last year the Bank also bought half of PayInc, the former BankservAfrica, a clearing house that had been in the banks’ hands since 1972. The banks hold the rest. The Bank’s complaint is that PayInc acted mostly for its shareholders rather than in the national interest. Perhaps. But the remedy for a club that is run for its members is to let others in, which is what the National Payment System Bill is meant to do.
Central banks do run payment systems elsewhere. That of Brazil has built and runs Pix, the instant-payment system the Bank often holds up as a model, and the US Federal Reserve operates FedNow. But those were built as public infrastructure. Buying half of a company still half-owned by the banks it regulates gives South Africa neither a public utility nor an arm’s-length regulator. It is not for the regulator to buy a half-share in the club.
Exchange controls, by contrast, are squarely within the Bank’s brief: the Treasury sets the policy and the Bank administers it. But even here, the instinct is to tighten.
In August, the National Treasury and the Bank published a draft manual that would bar South African companies from moving crypto assets across the border in either direction.
Kganyago defended the approach in July. “We cannot simultaneously have weak regulatory frameworks for crypto assets alongside a rigorous system of reporting and permissions for everyone else,” he said.
Consistency is a fair aim, but it assumes the rules are worth applying to everyone.
In April, the Treasury and the Bank announced they were replacing the old approval-based exchange controls with a “positive bias” regime, under which capital may move across the border unless it is flagged as high risk. That is welcome.
But the draft Capital Flow Management Regulations published the same month include declaration obligations, the compelled sale of assets no longer needed for their stated purpose and powers to search people suspected of carrying crypto out of the country. The crypto manual was issued as an exchange control circular. Whatever they are called, these are still exchange controls.
South Africa has had exchange controls since 1939, but today’s regulations date to 1961, when the apartheid government tightened them after the capital flight that followed the Sharpeville massacre. More than 30 years into democracy, South Africa has a floating rand, deep capital markets, $74bn in reserves and a central bank whose inflation target investors believe. Capital controls are an anachronism that tells investors it may be difficult to get their money out. They should be scrapped.
Kganyago’s inflation record will outlast him. So, unless he changes course, will a central bank that owns half the payments switch, wants to run the cash centres and would tell companies what they may do with a stablecoin. It’s regulatory overreach.
McLeod is editor of TechCentral
