Reading RW Johnson’s quite brilliant contribution got me thinking of parallels that will help us better understand the deluded thought processes of South Africa’s political leadership.
The most obvious one is a stokvel where a few disciplined members who have built wealth contribute all the money, led by one that puts in R25 000 a month. And others who spend more than they earn, among them one of them from a good family which contributed in the past, but now occasionally kicks in the odd R500. Let’s call the first one America, the second one, South Africa.
South Africa has some standing among the group because it hasn’t yet borrowed from the stokvel (not like its drinking pal, full-of-promises Ghana, who has dipped in 17 times). But because it is rapidly heading that way South Africa argues to change the rules to “equality” so it can borrow without changing its spendthrift ways.
___STEADY_PAYWALL___Logic tells us those who keep the stokvel going, like America, will never agree to such insanity. But South Africa has spent a lot of time in the shebeen with errant pals and firmly believes its argument. So tells off America, failing to read the room during the meeting where body language of other stokvel members shouts the obvious.
RW’s dissection of Cyril Ramaphosa’s remarks at Macron’s Paris Summit exposes the SA leader’s derangement on the subject. Watch the video and observe the cutaways – the body language of usually diplomatic Macron and the other global leaders in the room is telling.
Given the ANC’s low credibility, Ramaphosa’s lecture comes across like a non-player advised by high handicap weekend golfers explaining the fine art of putting, to a room of Majors winners. It’s embarrassing. At the very least Cyril needs new friends. At best, he should ship out the advisors feeding him such delusory rubbish.
Johnson, quips “this is truly pathetic stuff”. Like that shebeen-inhabiting stokvel member, the ANC government’s overspending on daily luxuries has expanded SA’s national debt for 15 consecutive years. It is a long road to recovery. One which only begins when voters put adults get into the decision-making chairs. Roll on 2024.
– Alec Hogg
RW Johnson explains SA’s delusional approach to BRICS as pure fantasy
By RW Johnson
One strange by-product of BRICS is that South African ministers who attend its discussions have been exposed to a great deal of propaganda about how the world is developing away from the Cold War and the era of superpowers into a multi-polar configuration, which means that lots of small and medium-sized countries (e.g. South Africa) will matter a lot more. And, as part of that, the world will move away from reliance on the US dollar. Not only Naledi Pandor but Cyril Ramaphosa and various other ANC ministers now talk gaily about this as tomorrow’s reality, apparently not realising that if this does indeed come to pass, it will be decades in the future.
This explains Ramaphosa’s rather bizarre speech at President Macron’s Paris summit on global finance calling for the reform of global financial institutions. He began by asserting that these institutions were controlled by Western countries and that Africa had little or no role there. He demanded that “Africa needs to be treated equally”. Currently Africans were “unequal cousins”. Equality “will help us to participate fully so that we don’t have a sense that we are beggars…it is important in the new era that the world is in now that there should be equality among sovereign nations”.
“Even in the multilateral institutions we want to be treated as equals. If our equity is at a low ebb there must be ways in which that can be addressed. We want to be key players on the world stage. We want to be key players even in the financial markets and in the global financial system.”
Ramaphosa also appealed for foreign investment into African infrastructure. There were, he said, 600 million Africans without electricity. The answer was for rich countries to invest in large projects like the Inga dam. “If the West can reform the global financial system and invest in infrastructure projects in Africa, then African nations will believe the West are serious….If you can do that, we as African will be convinced that these summits are really meaningful. We will now go home and say you know what, it’s worthwhile going to these summits, coming to Europe…”
This is truly pathetic stuff. No hint here that Ramaphosa heads a government which used to provide plenty of cheap electricity but has now deprived its population of electricity even at far higher prices. And if the West will but pour resources into Africa it’s reward will be that Africans start saying that, yes, it’s worth coming to Paris and elsewhere in Europe for conferences. But there is never a shortage of African volunteers to fly to European capitals, stay in their finest hotels and eat in their best restaurants. Let alone the shopping…..
Read more: Premium – RW Johnson: A modest proposal – time for CEOs to step up to the plate
But the larger mistake here is to think that playing a large role in the IMF is something which is going to be given to any country simply because they ask or beg for it. The IMF lends huge amounts of money and its key members have to pledge large resources to the Fund. Back in, say, 1950 neither China nor Japan played any role in the IMF. Now they are both very substantial players there – because they have achieved enormous economic growth. Any African country which can achieve similar growth will doubtless get to play a similar role.
But Ramaphosa wants Africa to be given such a role just as a matter of equality. Even though Africa is not at all equal, it’s much poorer. That, he says vaguely, is something “that can be addressed”. Well yes: Vietnam is addressing it like crazy and growing so fast that it expects to be a high income economy approaching European standards by 2050.
Let’s be frank. What Ramaphosa is suggesting is that African countries, major recipients of aid, loans and IMF bail-outs, should have more power in the IMF and World Bank. Ghana is currently on its 17th bail-out, for example. Zambia too has just signed on for yet another IMF bail-out. Why ? Well the IMF says “Zambia is dealing with the legacy of years of economic mismanagement”. Over and over again this is the reason for African bail-outs. If South Africa soon needs such a bail-out it will be for precisely that reason….It’s all very well complaining about Africa feeling like a beggar but the solution is easy: avoid economic mismanagement. Vietnam has only ever taken a few small loans from the IMF and has always repaid them in full. The IMF speaks in glowing terms of Vietnam’s achievements in reducing poverty.
There are two things wrong with Ramaphosa’s assumptions. First, having a leading role at the IMF or on the UN Security Council is all about power. These things are not given away, they have to be earned.
Second, if African countries were accorded a leading role in the IMF it would become a bank controlled by its debtors. No bank can possibly work on that basis. Let’s face it, African countries would, in that case, legislate that they should all be given large loans and they would then renege on repayment. A bankrupt institution follows.
Another wishful theme is about the replacement of the US dollar as the world’s reserve currency. Ministers like Naledi Pandor talk of this as if it were imminent. It’s not. Secondly, they – and she – happily talk as if BRICS will devise its own currency. This ignores the facts of life.
Read more: Premium – RW Johnson: More own goals means CR’s Lady R inquiry a farce before it begins
The original reserve currency across Europe and North Africa was the Roman nummus aureus (“gold money”). This lasted for many hundreds of years. When the Roman Empire fell there was no generally accepted reserve currency for a long time, just a series of more or less exchangeable national currencies.
From the 16th to the 19th century the first real reserve currency was the Spanish silver dollar, although the French livre and Louis d’or were also sought after. The key point was that Spain was able to gain enormous amounts of silver from its Latin American colonies which meant that it was able to mint huge numbers of silver dollars. The Louis d’or, being minted from gold, was much rarer and for a reserve currency to work it has to be plentifully available. The Spanish silver dollar was replaced by the British pound in the 19th century and the pound gave way to the US dollar in the 20th century.
As will be seen, a reserve currency is a matter of national power. Rome was an enormously dominant power for many hundreds of years. Later Spain and France were dominant powers in Europe, replaced by Britain after its victory in the Napoleonic Wars, while American power became paramount in the 20th century.
The idea of a BRICS currency is based on the success of the Euro, but it ignores the fact that the Euro is unique, that it is supported by a whole series of strong central banks and by a major trading bloc which is highly integrated and interdependent. Neither Asia nor Latin America have ever managed to create their own common currency – and even the Euro sometimes looks wobbly. But the BRICS countries are far-flung and are not integrated or interdependent. Moreover China is the sole and overwhelming economic power in BRICS, so in practice a BRICS currency would have to be China-backed and its central bank would be in Shanghai. There is no way at all that India would ever agree to that and India is the second economic power in BRICS. So a BRICS currency looks impossible.
So what about the Chinese renminbi as the world’s reserve currency ? China may soon be the world’s largest economy, after all. (And do note that the result will NOT be a multi-polar world. As in the Cold War, there will be two super-powers, this time the US and China.) But this leaves out the fact that people prefer a reserve currency only if they trust the central bank which prints that currency.
When the Zim dollar collapsed, Zimbabweans switched to the US dollar because, crudely put, they trusted the US Federal Reserve to maintain the value of its dollar but they certainly didn’t trust Zimbabwe’s central bank for any purpose at all. Even Zimbabwean peasants who’d never heard of the Fed were in practice putting their trust in the Fed.
Read more: Premium RW Johnson: A constitutional outrage, admission of guilt on arms-to-Russia
Why trust the Fed ? There are two reasons. First, as the economist Charles Kindleberger pointed out, from time to time the global financial system undergoes a major financial crisis from time to time and the only way to get over that is by having the global hegemon behave as the lender of last resort. And only a hegemonic power will do that because its interests are so wide-reaching that its interests are more or less co-terminus with the global system. So in the 18th century the Bank of England would play that role. The Great Depression occurred in the 1930s because Britain was no longer strong enough to play that role while the US was not yet ready to take its place. So when the crisis struck, there was no lender of last resort. Thus every nation tried selfishly to save itself with beggar-thy-neighbour policies – with disastrous results. From 1945 on the US assumed the role of hegemon so we have mercifully not repeated the Great Depression.
Secondly, the Fed is independently governed and is not subject to control by Congress or the White House. Its proceedings are transparent and are published. So everyone can see what’s going on and why interest rates move as they do. Similarly, all US economic data – its reserves, its gold holdings, its balance of payments figures, its printing of money, its issuance of bonds and so forth – are all matters of public knowledge. This means that economists throughout the world can examine exactly what is going on, analyse it and criticise it. This is a great virtue and it engenders trust.
Compare China. Even Chinese economists admit that Chinese figures for economic data get “massaged”. There is also no knowing what goes on inside the Bank of China. Over time the currency has clearly been manipulated to help exports. There are also disconcertingly sudden moves in the Chinese business world when the heads of major tech companies disappear for months without warning, or when companies are brought to heel by order of the Politburo. Observers are left guessing as to what is really going on. And absolutely everything is open to manipulation by the Chinese Communist Party: there is no central bank autonomy because there is no institutional autonomy of any kind. So if you put your money into renminbi you are completely at the mercy of whatever the Party decides.
On top of which Chinese foreign policy frequently bullies its neighbours. Sometimes China just grabs territory it wants and on more than one occasion small countries have been told that they have to accept this because “China is a big country and you’re just a small country”. In general this means that no one trusts the renminbi as a reserve currency. There is no transparency, data can’t be trusted, you’re at the mercy of unseen Party bureaucrats and there’s too much strong-arm stuff.
The result is that anyone with any choice chooses the dollar, the Euro or the Yen. Despite whatever Naledi Pandor may say there’s no prospect of this changing for a long time to come.
Read also:
