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Simon Brown: I'm talking to Viv Govender from LandSwiss. Viv, which I don't think anyone had ever heard of until late last year, except in true Reserve Bank nodes, is a gold and foreign exchange emergency reserve account.My understanding is that over the past few decades, the South African Reserve Bank [Sarb] I'm going to buy dollars. It buys gold as a reserve, which is an important part of the economy, and of course generates a profit, a paper profit, if the currency becomes cheaper. The important thing in this regard is that there is currently about R450 billion and of course the government may suddenly be looking to get some of that.
Viv Governor: Yes, this is a quick overview of this account. Obviously, if the currency is starting to appreciate, that's a good problem to have, but this will be negative. But for now you're right. There have been some bumps here and there as the currency has steadily depreciated over the past few decades, but the profits from this particular one have increased over time.
Simon Brown: It's quite a large amount, so don't make a mistake. But is it as simple as, I don't know, taking a portion of the profits and giving it back to the government? Certainly this is not unprecedented in other countries, but will it not affect our general reserves, which the IMF says are already at their lowest levels?
Viv Governor: In a sense, from the point of view of those who argue that we should do this, the argument becomes that if the currency was appreciating, the government would put money into this particular fund. The fact that the currency is depreciating basically means that the government is making a profit, so it should actually be able to access these funds.
Those against it say it's a slippery slope and there will be problems in the future, but it's the government and it's the ones running the country. You know what I mean? So the idea is that technically they should be making these decisions.
Simon Brown: Perhaps most concerning of all, let me be clear, is that our government is engaged in corruption and state capture. If you took that out of the process, it would probably be more palatable to a lot of people.
Viv Governor: Oh, that's true. The only problem is that the government is the decision-making body of the country. A political party in government shouldn't say things should be this way or shouldn't be this way. This is the elected body of the country, and I believe it has the right to make these decisions if they get a vote. No one else is making decisions for you.
So from that perspective, I think it's right that they are the ones who [making] decision. But you're right that this particular government is not doing the right thing historically, so there may be danger in that regard.
Simon Brown: And perhaps the solution is something like a process. At the moment it seems to be ad hoc. I was looking back – the government had added funding in 2003/2004 when they saw the strength of the rand. But it's kind of like a law where if you get X amount of money, you cut out some of it to get rid of the crazy ideas of fighting for cash.
Viv Governor: I definitely think so. This is a significant amount of money, and it is clear that there are big problems in this country, but it is enough to make a difference. If we could take even one-tenth of this amount, the deficit would change considerably. Obviously, the deficit is a flow, not a stock like debt, but it is a significant amount that can make a difference in that regard.
Simon Brown: The process, I imagine, is that if the government gave this back to the government, they would go to the market and turn that dollar into zaars, and thereby over that period of time quite a bit. We are likely to see an increase in the rand. And, as you said, even a tenth of that is R45 billion.
Viv Governor: Look, there are several ways to do it, but that would be a good one. Issuing some ZAR from these dollars is one way to effectively print money.
The question that arises is, what is this account used for? The problem is that we don't really intervene in the foreign exchange market. South Africa does not actively act to support the Rand, weaken the Rand, or take control of the Rand. In other words, the discussion becomes about what risks there are in doing this.
Having said that, it is clear that if any major problems arise globally, these reserves will become very important. However, we do not regularly intervene in the market to keep the currency within a certain range like China does.
Simon Brown: I understand your opinion. I think the last time we intervened was in 1998 during the Chris Stahls era. It cost billions of dollars, but the rand still depreciated.
Last point. You said “print money” and of course everyone listens to that because that's generally inflation. But in this case, you're printing money that's backed by money, so it's not inflation in the traditional sense.
Viv Governor: definitely. This is no more normal for the Reserve Bank than turning on a printer. But obviously, as you said, money is backed by money, but I think you're taking that risk. But once something like this starts, it becomes a temptation over time. And I said that 1/10 is R45 billion, and if 1/10 is depleted, it will disappear in 10 years at that rate.
So it doesn't sound that clear. There's a bit of a dilemma here. Because, as I said earlier, I honestly believe that. [if] You were elected by the people, so it's up to you to decide. But in this particular case, there is a reason why central banks and governments are usually separated.
Simon Brown: I understand that, but perhaps there needs to be a process in place.But of course it's the best time [instituted] That process would have been 10 or 20 years ago.
Viv Govender from Land Swiss, I always appreciate your insight.
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