By Pinky Khoabane
PRESIDENT Cyril Ramaphosa confirmed his party’s stance on the establishment of a state bank. Responding to questions in the National Assembly today, the President expressed support for a legislative amendment that would create a state bank and expand the banking sector in South Africa.
Ramaphosa reiterated the ANC’s commitment to the establishment of a state bank saying it was a resolution passed at the party’s national conference in December last year.
In an interview with former reserve bank director and author Stephen Goodson last year, he explained why we need a state bank and how it would work.
Goodson maintains that central banks represent the private banking system. Since the turn of the 20th Century, the number of central banks have exponentially increased following a conference in Genoa in 1922 at which among others, a decision was taken that independent states had to have their own central bank and these had to be independent of their governments. “What was not stated was who they would be dependant on. It has since transpired that central banks now work hand-in-glove with private banks,” Goodson says. The private banks are there to further and represent their interests.
He says the Reserve Bank represents the private banks in this country. “The Reserve Bank does issue bank licences but beyond that they represent the interest of the banks. They do this by granting them the right to create the country’s money supply from thin air by granting loans to the public. Six percent of the money supply consists of bank notes and coins and the rest is credit which is created by the private banks at interest as a debt to the detriment of the general public”.
The former Reserve Bank director is adamant that the State Bank is the way to go and cites North Dakota in the Unites States as an example. “We need to change the mandate so that the Reserve Bank serves the interests of the people rather than the private interests of the banks. We can only do that by two things; the constitution has to be amended and also a monetary reform bill has to be introduced which will create a state bank which will be under the control of the treasury.”
Goodson says the only way to a prosperous South Africa for all is to have a state bank.
How a State Bank Functions
1)Who will own the State Bank?
The people and the State.
2) Who will have overall responsibility for the running of the State Bank?
The Monetary Trusteeship, an organ of Parliament.
3) Who will manage the State Bank on a day to day basis?
4) How will the State Bank fund current government expenditure?
By paying newly created money into the economy on a planned budget.
5) How will the State Bank fund government capital expenditure?
By issuing zero interest bonds to organisations such as the Public Works Department, Eskom and Spoornet.
6) At what rate will the money supply expand?
The rate of increase will be reviewed monthly and will be subject to changes in the various price indices, demographic changes and increases/decreases in productivity.
7) Will the private banks be nationalised?
No, only the money supply will be nationalised. Full reserve banks will continue to compete with each other and efficiently allocate money to borrowers on a basis of shared responsibility for risk.
8) Will there be inflation?
No, because all money will be issued free of debt and interest.
9) Will homeowners have to pay interest on their loans?
No, only a small handling fee will be payable, which will be used to defray the running costs of the system.
10) Will farmers be entitled to 0% loans?
Yes, loans will be available at 0% and will include the financing of crops. Only a handling fee will be levied.
11) Will interest be payable on credit cards?
Once the new paradigm is in place the use of credit cards will be abolished and only debit cards will be available. Banks will charge a fraction of a percentage point for this service. Card holders will benefit from no longer having to pay interest and the large commissions which banks charge merchants.
12) Will interest be paid on savings accounts?
Only nominal amounts of interest will be payable, as these savings will be backed 100% by the reserves of the deposit receiving bank. As inflation will be zero, cash held in savings accounts will retain its value.
13) Will it be possible to earn a higher rate of interest elsewhere?
Yes, investment accounts will be available where it will be possible to earn a higher rate of interest. However, these investment accounts will not be entirely risk-free and the investor carries the risk that all or part of the capital invested may be lost.
14) Will it be possible to repay the national debt?
Yes, the national debt will be repurchased and replaced with South African Notes at zero interest over a transitional period.
15) Will there be taxation?
Taxation will be greatly reduced, as government and para-statals, for example, will no longer have to allocate vast sums of money for the payment of interest on their loans.