GENERAL EXPLANATORY NOTE :

[ ] Words in bold type in square brackets indicate omissions from existing enactments.

__________ Words underlined with a solid line indicate insertions in existing enactments.

 

BILL

To amend the South African Reserve Bank Act, 1989, so as to empower the Governor of the South African Reserve Bank to, having regard to the national economic interest, determine from time to time a percentage of the total amount of a bank’s holdings of Reserve Bank notes and subsidiary coin that may be taken into account for purposes of the calculation of the minimum reserve balance the bank is required to maintain in an account with the South African Reserve Bank; and to provide for matters connected therewith.

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BE IT ENACTED by the Parliament of the Republic of South Africa, as follows :-

Amendment of section 10A of Act 90 of 1989, as inserted by section 4 of Act 10 of 1993

1. Section 10A of the South African Reserve Bank Act, 1989, is hereby amended by the substitution for subsection (2) of the following subsection :

"(2) The credit balance in an account maintained in terms of section(1) by a bank, together with such percentage as may be determined in accordance with the provisions of subsection (4) by the Governor of the average daily amount of that bank’s Reserve Bank notes and subsidiary coin, calculated according to the total amounts of those assets held by the bank on all the days of the latest month in respect of which it furnished a return in terms of subsection (11) to the Registrar of Banks designated under section 4 of the Banks Act, 1990 (Act No. 94 of 1990), may at no time during any month amount to less than an amount equal to the sum of amounts representing the percentages, determined in accordance with the provisions of subsection (4) by the Governor, of the amounts of such different categories of the bank’s liabilities as may be specified by the Governor by notice in the Gazette with reference to the time when such liabilities fall due or with reference to any other aspect pertaining to such liabilities.".

Short title

2. This Act shall be called the South African Reserve Bank Amendment Act, 2000.

MEMORANDUM ON THE OBJECTS OF THE SOUTH AFRICAN RESERVE BANK AMENDMENT BILL, 2000

The above-mentioned Bill contains a proposal for the amendment of the South African Reserve Bank Act, 1989 (hereinafter referred to as the principal Act), in a single respect, which amendment can be explained as follows :

1. Clause 1 of the Bill

1.1 Clause 1 of the Bill proposes an amendment of subsection (2) of section 10A of the principal Act. In essence section 10A of the principal Act requires all banks to maintain at all times a minimum reserve credit balance in an account with the Reserve Bank. This credit balance together with the average daily amount of the relevant bank’s holdings of Reserve Bank notes and subsidiary coin (calculated according to the total amounts of those Reserve Bank notes and coin held by the bank on all the days of a relevant month), may at no time during any month amount to less than an amount equal to the sum of amounts calculated by reference to certain percentages, determined by the Governor of the Reserve Bank, of the amounts of such different categories of the bank’s liabilities as the said Governor may specify by notice in the Gazette.

Section 10A essentially provides an instrument for the execution of monetary policy, inasmuch as it allows the Reserve Bank to exercise a measure of influence over the liquidity situation in the banking sector.

1.2 Although section 10A of the principal Act has thus far been applied with reasonable effectiveness as an instrument of monetary policy, the recent difficulties relating to liquidity shortages experienced by certain banks (while other banks were at the same time experiencing a surfeit of cash) brought to the fore certain limitations attaching to section 10A as an effective instrument of monetary policy. These limitations revolve around the fact that, as presently worded, section 10A allows banks to take the total amount of their holdings of Reserve Bank notes and coin into account in the calculation of their minimum reserve balance requirements.

During the course of dealing with the above-mentioned liquidity problems experienced by certain banks, it became clear that if the Reserve Bank were to be enabled to exercise control over the extent to which banks’ holdings of Reserve Bank notes and coin could be taken into account for purposes of the calculation of their required minimum reserve balances, the Reserve Bank would be better equipped to contribute towards the smoothing out of imbalances in the liquidity situation in the banking sector.

1.3 The amendment proposed in the Bill has as its objective the enhancement of section 10A of the principal Act as an effective tool of monetary policy. In terms of the amendment the Governor of the Reserve Bank is empowered to, having regard to the national economic interest, determine from time to time a percentage of the total amount of a bank’s holdings of Reserve Bank notes and subsidiary coin that may be taken into account for purposes of the calculation of the minimum reserve balance the bank is required to maintain in an account with the Reserve Bank.

2. Consultation

The amendment proposed in the Bill resulted from deliberations between the Legal Services, Money and Capital Market and Bank Supervision departments of the Reserve Bank. The Bill was, furthermore, considered and approved by the Governors’ Committee of the Reserve Bank.

 The proposes South African Reserve Bank Amendment Bill, 2000 was published for comment in the Government Gazette No. 21002 of 17 March 2000 and on the Internet. Comments were received from Rand Merchant Bank ("RMB") (a Division of FirstRand Bank Limited), Standard Bank Investment Corporation Limited ("Stanbic") and the Banking Council, South Africa ("BCSA"). As was expected, all these parties are in opposition to the proposed amendment.

3. Contact Person

Adv Johann de Jager, General Counsel, Legal Services Department, South African Reserve Bank.