The Political Economy of South Africa’s constitutional road to Central Bank Independence (1993–1996)

Abstract:Many countries across the world, including on the African continent, legislated increased independence for their central banks since the early 1990s. The way in which this happened took different forms. In some cases these legal processes were wrapped either into constitutional reforms in the context of democratic transitions or into economic reforms that changed the strategic direction of their development. This research note provides a fresh assessment of the affirmation of central bank autonomy and independence in South Africa during the period of constitutional negotiations up to the country’s first democratic elections in 1994. Although the independence and autonomy of the SA Reserve Bank (SARB), the central bank of the country, are enshrined in its Constitution, little has been written about the ideas and processes that culminated in such inclusion in the Constitution, in itself an unusual step at that time. This note addresses this void in the literature. The affirmation of central bank autonomy and independence (CBI) from political interference coincided with similar processes at that time in other developed and middle-income developing countries. In South Africa the decision taken at the time of the constitutional negotiations to grant the SARB its independence followed on an unfortunate history of government intervention in the central bank in the 1980s. In this research note we analyse some key documents on this policy debate, previously undiscovered, and present the views of a range of key actors in the negotiations process. Some economic policy think tanks such as the Economic Trends Research Group, and the Industrial Strategy Project, did not have a view on the matter of CBI, as far as we could gather. Our conclusions, based on this new evidence, are both surprising and unexpected. SARB independence was enshrined in the Constitution, we show, as much ‘by accident than by design’.