SARB estimates that it receives between R9.2 billion and R12 billion a year in seigniorage income (the difference between the value of physical money produced and the cost to produce and distribute it). What is interesting about the SARB’s estimate is that defines seigniorage as an implied opportunity cost definition, as opposed to a cash profit definition. As we have shown in earlier posts, SARB’s expenses consumed all of the seigniorage revenues from its monopoly on money production between 2021 and 2025. Whereas SARB’s preferred definition implies seigniorage revenues of about R45 billion since 2021, it is only R10 billion if one simply compares the SARB’s costs of currency against new currency issuances.
SARB’s definition boils down to looking at how much money SARB saved by not having to borrow to fund itself at the policy rate. SARB argues that these returns offset the costs of carry associated with holding foreign exchange (FX) reserves. Last time we looked at the costs of holding FX reserves in SA, our estimates suggested average carry cost of 0.5% of GDP per year. We argued that it is hard to know whether spending 0.5% of GDP on reserves as an insurance policy offers value for money or not, especially in our current macroeconomic context. For context, the South African government spends upwards of 6% of GDP on servicing its debt. A key policy question remains as to what the appropriate role of SARB’s foreign reserve management policy is in the context of the nation’s deteriorating sovereign financial position.
The decline in cash seigniorage income is one reason that the SARB did not transfer any income to the government between 2010 and 2019 and has not transferred any income since 2021. As we have shown, this is unusual by international standards. The US Federal Reserve, one of the other remaining privately owned central banks, transfers profits amounting to almost 0.5% of GDP to the US government each year.
South Africa’s seigniorage distribution also exhibits a clear regional asymmetry: Common Monetary Area partners absorb approximately 10% of total payouts, even though their combined GDP represents only 5% of South Africa’s economy.
Footnote
Pressure on seigniorage also means that the unremunerated reserve requirement has played a bigger role in sustaining SARB’s seigniorage revenues. SARB requires registered banks to keep 2.5% of their liabilities with it without receiving interest. We estimate that over the last year, the opportunity cost to banks has been about R12.5 billion (around 5 percent of banks’ average monthly net interest income). Seigniorage does not publish a long history of seigniorage data, but we estimate that these have been approximately R80 billion (before production and distribution costs) since 2008. This is lower than the total implied revenues from unremunerated reserves, which we estimate have been around R100 billion. To put this into perspective: SARB’s annual income is more than government spends on provincial public transport.
