South Africa’s Central Bank Rules Out Financing Government
South Africa’s central bank ruled out helping the government fund its runaway budget deficit by paying for its spending through loans, as the ruling party debates using the institution to fund infrastructure and development. “We do not think it is prudent to finance government directly,” Kuben Naidoo, a Reserve Bank deputy governor, said on a conference call hosted by money manager Ninety One.
“It would increase inflation risks. It would blur the lines between an independent central bank and publicly-elected office bearers. If we were to finance government directly, there would be no pressure on government to manage their costs in any way.”
The idea of monetary financing — where the central bank buys debt directly from the government — has been touted by Willem Buiter, a former Bank of England policy maker and Citigroup Inc. chief economist, as a potential solution for developed economies pouring money into the Covid-19 fight. Doing this, though, said removes the central bank’s role in ensuring the government remains disciplined in its spending and could mean the “entire system crumbles.”
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