By Pinky Khoabane
BUSINESS DAY on Monday reported that Finance Minister Malusi Gigaba told Parliament that Treasury wasn’t planning on establishing another state bank. He reportedly said his department was “helping to establish the Postbank” as the only state bank.
“Gigaba noted that a number of state banks were already operating, including Land Bank, Development Bank of Southern Africa, Postbank and many other development finance institutions,” the report said.
Twitter being what it is, there was a reaction to the article.
“Same article, contradictory information. Slight of hand seems semantic difference between ‘new’ state bank & ‘newly constituted’ state bank” a Russel Lamberti tweeted.
“Article contradicts itself & ignores the importance of a licence for the Post Bank to operate with fractional reserves”
There has been much confusion, and I would posit it’s deliberate, since the debate on radical economic transformation (RET) reared its head. The establishment of a state bank has been mooted as one of the imperative interventions towards achieving RET.
Rob Price: “Confusing reporting from @BDliveSA Banking & Monetary policy are so poorly understood and this merely adds to the murkiness”.
Redge Nkosi, Executive Director and Research Head at Firstsource Money.
“Yes, Land Bank, DBSA are indeed State Banks. But IDC, NEF, SEFA are not banks. They are mere STATE lending/financial institutions.
But while DBSA/Land Bank are State Banks, they are what we call QUASI banks. Why quasi banks? Because on their own, they don’t create money like ABSA, Barclays, Standard, Nedbank etc. They are not client banks of the Reserve Bank.
All the money they lend either comes from fiscus (shareholder), from their profits or is money they borrow from somewhere at favourable rates and on-lend that money to their clients. Thats why Land Bank even borrowed $300mn recently so it can lend to its agricultural clients. They are not Deposit Taking Financial Institutions of State. Post Office will be a deposit taking state bank and maybe the only TRULY state bank. I have not checked its licence though.
What we are making noise about is the creation of State Banks, at national, provincial and local levels that CREATE money from nothing and lend that money to SANRAL, ESKOM, Transnet etc etc. There are profound macroeconomic implications for the phrase “Create Money”. It is not well understood (if any at all) by almost 99.8% economists, including those who work in Reserve Banks. What we have recently come to know is that the IMF & BIS do secretly know the macroeconomic implications of bank created money BUT they do not reveal it to the world, because their political mandate, agenda do not allow them to.
So, as part of reforming the banking and monetary system, we have to reform the IDC type of state financial institutions etc as they don’t behave in a proper “developmental” way as would be accepted by us the people. They do help surely, but not as much as they should.
Redge Nkosi on Why Money Must be Created by The State & Not Banks http://uncensoredopinion.co.za/money-must-created-state-not-private-banks-2/
Former Reserve Bank Director and author of “A History of Central Banking and the Enslavement of Mankind” and “Inside the South African Reserve Bank Its Origins and Secrets Exposed”
“The Land Bank and Ithala Internet Banking are government owned institutions. They are part of the usury system and lend money at interest. There is a move to convert the Post Office Bank into a State Bank, but this will not be a real State Bank, as it will also lend money at interest. At present it can only accept deposits and its banking licence will have to be changed so that it can advance loans, but as already mentioned, interest will be payable. The Post Office Bank has about R12 billion in deposits and could in theory lend out R120 billion for home loans, at say 1% per annum, and still pay its depositors a generous rate of interest. This is how the Bank of North Dakota operates in the US”.
How a State Bank would function
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.