For most central banks, seigniorage revenues (the difference between the value of physical money produced and the cost to produce and distribute it) represent a meaningful source of funding. Historically, issuance costs have consumed around a quarter of implied seigniorage revenues in South Africa. But as we have shown previously, cash has stopped producing meaningful seigniorage for SARB since 2023, as a result of a decline in the stock of notes and coins and an increase in the cost of issuing and managing cash.
The implication is that SARB is now dependent on the seigniorage revenues it generates from reserve requirements it imposes on banks, as well as income from managing assets on behalf of government. The former is a form of financial repression – affecting market interest rates and the cost of debt. As we have shown previously, this costs South African banks (and therefore consumers) billions of rands per year. This is also no longer necessary for the implementation of monetary policy. But SARB may be reluctant to reform this arrangement given the pressure on its seigniorage revenues. Reliance on income from managing assets for government also poses challenges for the central bank, with periodic political pressure on SARB to realise unrealised profits on South Africa’s foreign reserves.
SARB stands out internationally for its ability to set its own budget and these developments suggest that it will be under pressure in future to reform of its funding framework.
Footnote
The South African Reserve Bank (SARB) does not publish data on the cost to produce individual notes or coins or its seigniorage revenues, so these calculations are based on what data are publicly available.
It is also worth pointing out that SARB’s figures appear to contrast with data from PayInc (formerly BankServe Africa) which show that money demand has relatively stable over last two years, but these cannot be compared to directly as the data are not published.
