LETTER: Hands off money supply

04 August 2017
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The public protector’s call for a constitutional amendment to bring an end to inflation targeting is confused and confusing. The public protector cannot order Parliament to change legislation. Ending inflation targeting would increase inequality because rampant inflation would hit the poorest hardest since most of their wealth is held in cash.

Rampant inflation devastated the Zimbabwean economy. Under inflationary conditions, it is impossible to plan or to make rational economic decisions. People become more concerned with anticipating inflation than with seeking out profitable new production opportunities. Inflation forces individuals to spend almost all their income on consumption and leaves them with very little, if any, to save.

Savings are critical for society. They lead to investment, which finances the purchase of machinery and equipment, research and development. Investment enables workers to become more productive and earn higher wages. Inflation also affects the competitiveness of export industries and import-competing industries. To compensate industries by depreciating the rand only raises the cost of imports and increases prices.

Inflation benefits borrowers at the expense of creditors because it erodes the real value of money. Given that the government is generally the biggest borrower, inflation invariably redistributes wealth from private individuals, rich and poor, to the government.

A stable money supply is imperative and the solution to increased prosperity for all. For this to come about requires less interference and meddling by the government.

Jasson Urbach Johannesburg

This article was first published in the Business Day on 26 June 2017

 

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