6 June 2019

South Africa: The Quantity of Monetary Easing, Not 'Quantity Easing', May Be the Stimulus the Economy Needs

Photo: allafrica.com
Left: ANC Secretary General Ace Magashule. RIght: Finance Minister Tito Mboweni.

Amid all of the hilarity triggered by the ANC statement regarding 'quantity easing' lie some serious issues. Quantitative easing has been a weapon of choice among policymakers in the developed world to tackle sluggish growth and approaching deflation in a low-interest rate environment. Basically, central banks boost liquidity and the money supply with money straight off the printing press by purchasing assets such as government bonds. In South Africa, a more sensible and straightforward approach, which has the added benefit of wide political and business support, would be to simply begin cutting interest rates.

South Africa, as an emerging market, is probably not in a position to begin "quantitative easing". To be honest, there is an element of discrimination at play here. When the European Central Bank or the Bank of Japan embark on such a path, it is labelled "quantitative easing". When a developing economy tries something similar, it is seen as printing money, pure and simple - the last resort of a banana republic. That may not be entirely fair, but there you go.

A lot has happened since the prospect of exploring the option of "quantity easing" was raised by ANC secretary-general Ace Magashule at a press...

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