Investing in a central bank?

SARB 800

Take a look at this extraordinary news item reported by Reuters a couple of weeks ago: “South Africa’s central bank sells shares of investors deemed to have too many”.

The South African Reserve Bank (SARB) is putting up for sale 150,000 shares currently held by private individuals and institutions, in a move to prevent attempts to influence central bank policy. Apparently several shareholders have ignored the law that limits any individual holding or group of holdings to 10,000 shares.

Earlier this month, the bank invited South Africans to purchase the newly available shares, stressing that it wanted to diversify its shareholder base. The stock used to trade on the Johannesburg Stock Exchange, but left when it was unable to comply with changes to listing requirements. It now trades on an over-the-counter market coordinated within the Reserve Bank, and pays a dividend of a maximum of R0.10.

Which part do you find more astonishing? That we have a central bank marketing its own shares to the public? Or that it is even possible to own shares in a central bank?

If the latter, you’re not alone.

And nor is the SARB. The central banks of Switzerland, Japan, Belgium and Greece also list on local stock exchanges.

For an excellent summary, see JP Konings article from a while ago.

Back to South Africa. The marketing pitch seems to be based on patriotism, because the shares themselves aren’t that attractive. The yield is paltry (just over 3%), the dividend is capped, it is run as a not-for-profit, any profits go to the government and shareholders have no voting rights. And get this, you can only buy or sell these shares by sending your instructions “by means of postal, facsimile, hand delivery or e-mail communication only” (taken from the SARB website). So you do need to wonder, why would anyone buy them, unless it is in the hope of having some influence?

Why is this important? Because it underlines that most of us don’t really understand central banks. Just like bitcoin showed us that we don’t really understand money.

Just like being aware of alternatives to fiat money can help to bring about financial reform, being aware of different models of central banks will open mental doors to a re-imagining of the system.