Wednesday, 10 March 2010

I support Greta Steyn


Greta Steyn recently stated that she would be happy if the government controlled all the shares in the South African Reserve Bank.

In simple terms, abandoning monetary prudence at the SARB can only destroy the SA monetary economy – period. Example: Zimbabwe. Inflation is only a monetary phenomenon and can only destroy the real value of the Rand and other monetary items – nothing else. Inflation has no effect on the real value of non-monetary items. SA accountants would destroy the SA constant real value non-monetary economy (like Zimbabwean accountants did) with their very destructive stable measuring unit assumption – even during hyperinflation – if hyperinflation was ever created by the SARB in SA.

SA accountants currently destroy the real value of SA banks´ and companies´ capital and profits never maintained with sufficient revaluable fixed assets under the HCA model at the rate of 6.2% per annum amounting to about R200 billion each and every year. PricewaterhouseCoopers state very clearly in their publication Understanding IAS 29: “Inflation adjusted financial statements are an extension to and not a departure from historic cost accounting.” Accountants – unbelievably supported by PricewaterhouseCoopers – still apply the stable measuring unit assumption during hyperinflation and then only restate the year-end Historical Cost financial statements of their hyper-destroyed businesses at the year end CPI rate – after they have hyper-destroyed all constant real value non-monetary items never maintained or never updated during the financial year with their stable measuring unit assumption – during hyperinflation.

This is prevented with either financial capital maintenance in units of constant purchasing power during low inflation as authorized by the IASB in the Framework, Par 104 (a) twenty one years ago or with indexation – which is in principle the same process – as Brazil did for 30 years from 1964 to 1994.

Destroying SA´s economy like it happened in Zimbabwe is a political act. The SARB having some private shareholders who have no influence will not stop a Zimbabwe style destruction of the SA monetary economy. Either SA has the right political leaders or not.

Contrary to what some people state and believe, the government already owns the majority of shares in the SARB. It is not privately controlled. It has some private shareholders - a minority. The Bank´s independence from government interference in monetary policy is stated in the constitution.

I support Greta’s position.

Obviously, for the government to hold all the shares in the SARB is not the same as nationalizing the mining industry or banks or the economy as a whole as Malema wants.

Kindest regards

Nicolaas Smith

Copyright © 2010 Nicolaas J Smith


  1. Dear Nicolaas

    You urge the nationalization of the SARB, talk against the SARB acting like the Zim Reserve Bank and conclude that you 'think' the Gvernment already owns the majority of the shares in the SARB.

    The SARB is 100% owned by private shareholders. There is 418 of them with votable shares (over 200 ea) and another hundred or so non-voting shareholders.I have a share register copy and have just invited the shareholders to support an extraordinary meeting.

    I fail to see your point then. The SARB shareholders are concerned that their attempts at holding the Directors accountable for corporate governance issues is coming to naught. Do you believe for one moment that a Government owned SARB will be more accountable? Like Eskom or SAA? Would you not rather support a proper participation of shareholders to hold the SARB accountable for its often mysterious actions?

    Please visit the SARB website and buy 200 shares OTC - they're reallly cheap today, R1.00 each, dowm from R11.50 on Monday. That will make you ab voting shareholder and please join the AGM and other meeting to see for yourself what is transpiring

  2. MB,

    I made a mistake. I apologize. The SARB is 100% privately owned as you state. I was informed by Tim Cohen that he got it wrong in his article in the Business Day. I believed what he stated at the time.

    If there are problems with corporate governance at the SARB - from a central bank’s point of view - it is your duty as a shareholder to inform the public and the right authorities in the correct manner which, I am sure, you know better than I do.

    The Bank’s independence in monetary policy is stated in the constitution. That is what I would fight for.

    I must first point out that I am an accountant and not a politician.

    My point is the following: monetary policy at the SARB is all about what SA is really about. I honestly believe that the present government – in general terms – has the best interests of all South Africans in mind in their policies. One can find fault in specific policies. I find fault in the present government’s education policy. Education is the cheapest form of capital. I think the present education policies have much to be improved.

    As far as the function of the SARB is concerned: the SARB is a very effective instrument to maintain the real value of the Rand and other monetary items. Because of Historical Cost Accounting, SA accountant’s implementation of the stable measuring unit assumption means they unknowingly destroy about R200 billion per annum in the real value of especially companies’ capital and retained profits never maintained with sufficient revaluable fixed assets – under HCA during low inflation. Something that you, MB, and most SAs most probably do not understand since hardly any of the 27 000 plus SA accountants understand it.

    If the SA government does not understand all the workings of a modern open economy, and they abandon monetary prudence at the SARB and simply “print money” like the Zimbabwean government did, SA will go the same way as Zimbabwe whether the SA government owns no share in the SARB or owns all the shares. It is a political act. Holding or not holding shares in the SARB will not make any difference.

  3. When SA accountants abandon HCA and reject the stable measuring unit assumption during low inflation; i.e. when they change over to measuring financial capital maintenance in units of constant purchasing power during low inflation as they have been authorized by the IASB in the Framework, Par 104 (a) in 1989, a hyperinflationary Zimbabwean-style "printing money" policy at the SARB would only destroy the real value of the Rand and other monetary items in the SA monetary economy. It will do nothing to the SA real economy - as long as SA accountants keep on rejecting the stable measuring unit assumption. SA would then do what Brazil did for 30 years from 1964 to 1994: high and hyperinflation in money and other monetary items but stable values in the real economy.

    I hope this does not give COSATU some funny ideas.


    Mar 12 2010 11:33

    The maintenance of financial stability is part of the mandate of the SA Reserve Bank, says an adviser to the governor and chief economist.

    Johannesburg - The maintenance of financial stability is part of the mandate of the SA Reserve Bank (Sarb), an adviser to the governor and chief economist said on Friday.

    This was confirmed in a recent open letter from Finance Minister Pravin Gordhan to Sarb Governor Gill Marcus, adviser Monde Mnyande said in a speech prepared for delivery at the leadership forum of the Airports Company South Africa.

    "The events of the past three years have, once again, highlighted the importance of financial stability," he said.

    "The letter reaffirmed the role of the Bank in overseeing and maintaining financial stability and, in the aftermath of the global financial crisis, has now also made this financial stability role an explicit part of the Bank's mandate."

    On shareholding in the Sarb, Mnyande noted that there had been "much discussion" in the media about the Bank's private shareholders.

    "There still appears to be a lot of uncertainty, notwithstanding a press release by the Bank on January 25 2010 to clarify the matter."

    Mnyande said the central banks of, among others, Italy, Japan, Pakistan and South Africa, were institutions with shareholders other than their respective governments.

    "The Bank is an institution created by statute, with the status of an independent legal person, which may not be liquidated other than by an Act of Parliament.

    "Its independence is entrenched in the constitution and it is not owned by anyone but by South Africans."

    Mnyande said that in this sense, it belonged to the country as a whole.

    Control of the Sarb was exercised between its shareholders and government in such a way that the government, in normal circumstances, might exercise ultimate control over the Sarb.

    "Furthermore, the Sarb Act does not grant shareholders any authority to remove directors," he said.

    As the Bank was a statutory institution, shareholders were also unable, by means of a resolution or otherwise, to amend or change its constitution.

    "The Sarb Act determines that the Bank shall be managed by the board and that the governors and deputy governors must devote the whole of their time to the business of the Bank," Mnyande said.

    "The board consists of a governor, three deputy governors and three other directors, all appointed by the president of the Republic (after consultation with the minister of finance and the board), and seven other directors, appointed by the shareholders."

    He said individual shareholders were prevented from exercising undue influence over the control of the Sarb by virtue of the prescription that no shareholder may hold more than 10 000 shares in the bank.

    "They also receive a fixed dividend at a rate of 10 cents per annum on the value of their shares held, provided that profits are realised." He said voting was restricted to one vote for every 200 shares held, with a maximum of 50 votes per individual shareholder, and that these could be exercised at meetings of shareholders of the bank.

    "The concept of shareholding in the Bank is based exclusively on principles of shared community representation and participation in the oversight of the Bank, for purposes of increased independence, transparency and accountability, in the ultimate interest of the general public of the RSA."

    Mnyande said Sarb shareholders should therefore at all times exercise their powers in accordance with these principles and avoid any actions that could be construed as an attempt by them to abuse their undue powers "for purposes of self-interest and own enrichment".

    - Sapa