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Emerging market central banks in spotlight in wake of SA debate

Other countries have had similar discussions to South Africa about the role of their central banks.

Debate has erupted within South Africa‘s ruling African National Congress party about whether to widen the role of the central bank to encompass job creation and economic growth alongside its existing remit of ensuring price stability.

Read: ANC row over central bank unnerves investors

Ahead of the South African Reserve Bank’s three-day monetary policy committee meeting next month, Reuters used multiple sources to look at the mandates of other central banks:

Which other emerging market central banks have a broader role? 

Several countries including Russia, Ukraine, Malaysia, the Philippines, Iraq, the Czech Republic and Hungary have a broader mandate that also covers the promotion or support of economic growth or development in addition to ensuring price stability.

Turkey’s central bank, which has been criticised for its handling of the country’s economic troubles, has a mandate that includes supporting the growth and employment policies of the government “provided that it shall not conflict with the objective of maintaining price stability”.

Other countries have had similar discussions to South Africa about the role of their central banks.

Brazil’s government last year weighed overhauling the central bank as part of a plan to cut state expenses and strengthen the economy. That included discussion on whether to add the monitoring of employment to the Central Bank of Brazil’s duties.

How do the mandates of central banks in emerging markets compare to those in developed markets?

Traditionally, emerging market central banks have tended to have a slightly different mandate to those in the developed world. More volatile financial markets and currencies mean many in the past acted as defenders of financial stability, as well as fighters of inflation.

But with inflation in some emerging markets now largely tamed and many less reliant on external funding, the role of some is shifting to focus on keeping inflation in check as well as boosting growth, often a priority for populist governments.

In general, inflation-targeting has become more fashionable among central banks in recent decades as they have gained greater independence. New Zealand and Britain were among the first to adopt the technique involving making public a projected inflation rate, then attempting to steer actual inflation toward that target using interest rate changes.

What are the pros and cons of a wider mandate?

Debate about central bank mandates has tended to be more prevalent in major markets. The US Federal Reserve, the Reserve Bank of Australia and Reserve Bank of New Zealand have dual mandates under which they seek to boost employment while keeping price stability in check.

Proponents of the structure say it ensures central bank policies do not undermine job creation, while enabling clear communication with the public, as inflation and unemployment are widely viewed as important gauges of economic wellbeing. But detractors say having a dual mandate can distract the central bank from its most important focus, of ensuring price stability, potentially leading to higher inflation without more jobs.

How independent are emerging market central banks compared to those elsewhere? 

One of the fears about any changes to the South African Reserve Bank’s mandate is that it could open the door to political meddling. Some critics draw parallels with Turkey, where political interference has raised doubts about the central bank’s independence.

Globally, five central banks have no formal autonomy: Brazil, Thailand, Poland, Norway and China, according to a study last year by Brazilian bank Itaú BBA.

The US Fed is among central banks with the most autonomy. It can deploy policy instruments as it chooses and apportion levels of priority to each of its three objectives set by law: maximum employment, stable prices and moderate long-term interest rates.

Australia, Canada and Colombia are examples of those with more limited powers, the Itaú BBA study found, whereby the goals of monetary policy are often set by the government, often working in unison with central banks. The central banks then have the freedom to set the right policy to achieve those goals.

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Maybe bond holders (and vulture funds) and those doing reckless lending to central banks (like Argentina) need to come into spotlight as well.

Bond Holders (and vulture funds) as you term it don’t lend to the Central Bank. Refer to the SARB’s Balance Sheet and on the Liability side you will see nothing that fits your description. More than 95% of Liabilities is made up of Notes & Coins, Local and Foreign Deposits and the Reserve Account.

Yes but non of these countries Central Banks have a mandate to monetize state debt … which is the ANC’s Ace up the sleeve plan.

SA Central Bank will not create more employment and wealth for the masses.

Economic growth, an increase in real GDP, meaning an increase in national output and national income which is caused by an increase in demand and an increase in supply will.

The government can influence that by getting SA productive. Make our goods and services competitive by price and quality in the world markets. How? By getting rid of minimum wages, BEE and other disruptive notions. By striving to ease participation of economic activity to all with minimum red tape. By ensuring a good school system and good law and order, adhering to one credo, strive for excellence. Increasing money supply willy nilly without economic growth will lead to a Zimbabwe outcome.

I see only 2 possible outcomes. One they nationalize the reserve bank and the other is they don’t.

They don’t nationalize the Rand will weaken.
They nationalize the Rand will weaken faster.

There can not be an easier investment decision to make.

I keep saying the same thing – this is all a distraction / smokescreen / red herring for Cyril doing nothing and Ace / the ANC stealing.

As noted SARB cannot help SA’s economic plight; action, even just examples, to close the plughole of theft, bloated state, incompetent oaficials, suspend EWC, WMC, AA & BEE etc etc will do wonders. Cyril way too timid and scared, let alone incapable.

I say again; I think the SARB thing is just a distraction / red herring / smokescreen for incompetence and theft by Ace and the ANC.

Every year, gold worth tens of billions of dollars is illegally exported from Africa and the volume of smuggling is constantly growing. This gold enters the world markets mainly through the UAE.–

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