Who Creates Money in South Africa

I recently ran a twitter poll asking:

Who creates and allocates the majority of the money supply in South Africa?

* The Government
* The SARB (Central Bank)
* Commercial Banks
* Capital and Money markets

The question was taken from a talk given by Prof. Richard Werner. Which I highly recommend you watch.

Who do you think it is?


The results of the twitter poll are:

  • 11%: The Government
  • 48%: The SARB (Central Bank)
  • 14%: Commercial Banks
  • 27%: Capital and Money markets

Only 14% of people in South Africa know who really creates the majority of money (Based on a sample of 84 twitter people)

Although central banks do create some money, the majority of money is created and allocated by: Commercial Banks

Commercial Banks

So what are commercial banks? They are private for-profit institutions. To name the biggest ones: Standard Bank, FNB, Nedbank, Absa and Capitec.

Commercial Banks create and allocate the majority of money supply is South Africa

We will discuss this further but first...


Seigniorage is the difference in cost between printing bills or minting coins and the value of the money printed or minted.

In most countries, the central bank is still in control of creating physical paper and coin money.

For example the SARB prints 1000: R200 bills. It sells those bills at face value to banks and receives R200000. Yet it only cost them R3000 for the paper and printing process.

So seigniorage is (R200 000 - R3000) = R197000

The central bank has created money: exactly R197000 by printing and minting coins. It uses this money "supposedly" to reduce the tax burden.

So How much physical money is in circulation?

The M0 Money supply, is all physical cash plus bearer certificates and required reserves, is at R240 billion (Dec 2016).

The M3 Money supply (the widest classification of money), which includes: savings deposits, money market securities, mutual funds, other time deposits, large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets, is sitting at R3.1 trillion (Dec 2016).

The reserve bank has created up to R240 billion (7.7%) of the total R3.1 trillion.

Commercial banks create the lion's share. They create and allocate the other 92.3% of money supply.

Commercial Banks and Money Creation

Economics textbooks and mainstream media all describe banks as financial intermediaries: transferring existing savings from depositors to investors. This is of course incorrect, Banks are the one's creating the money.

Commercial Banks create (and destroy) money by issuing loans.

How Commercial Banks Really Create Money

It is quite simple.

McTavish asks the bank for a R10000 loan and signs a loan contract. The bank types R10000
into McTavish's current account as a deposit.
The bank then types R10000 as an asset, and the R10000 as a liability on its books.

There is another way. The bank can buy assets:

Standard Bank wants to buy Sandton Square from Liberty Holdings for R1 billion. Standard Bank opens an account for
Liberty and types in R1 billion as a deposit.
It then adds R1 billion as a liability on it's books.

For another explanation see Positive money how commercial banks create money

Allocating of Money

This creation of money is all above board and legal.

There is another sinister practice that is largely responsible for creating boom and bust cycles in the economy.

The commercial banks can choose what assets they buy and who or what they give loans to

If commercial banks are not controlled, they naturally become greedy and choose avenues of the fastest creation of money. Which leads to bigger bonuses for executives and employees.

Instead of using this great power of creating money by giving loans to small businesses and promoting positive economic activity and creating jobs, they choose different methods.

In South Africa (or anywhere), small businesses are risky from the bank's perspective as they fail often. Excluding the crazy derivative bets they make with the money, banks like to give loans where it is easy to recover the money. Such as property, as they can repossess the house and the house will hold its value. Ie. it won't be a bad debt.

The problem is that a property does not generate real economic activity, it is a shell. No other people benefit and not much tax revenue is generated.

The more loans, in greater size, given...leads to more demand and the asset prices go up. The bank is smiling. It will smile even more by buying property itself and pouring money into the property market. Increasing the value of property. This all leads to giving more loans and creating more money by the bank.

This is the proverbial asset bubble that banks create. The result, in the US, was the housing crisis causing banks to fail.


So at this point you may be expecting a revelation or for something you can do or we as a society can do to harness this power of creating money and use it for good.

There are various proposals to correct the monetary system. However, since the abolishment of the gold-dollar standard in 1971 it seems that no one in the world or locally wants to. As former colonies we will continue being taken advantage of, and will look to America to lead as few in Economic Academia and Media actually know what is going on. We are still being influenced by the Central Bank Narrative.

As long as very few are aware of the pragmatic workings of the economy and so long as the people running things can keep juggling the balls, nobody cares...


  1. Source: Banking market share info South Africa.