Hedge funds, central banks and left-wing activists urge Treasury to liquidate reserves, print more money

The South African central bank is in talks with the Treasury to access the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), and to urge more money printing.

The Institute for Economic Justice and other left-wing groups urge Treasury to consider using the reserve to prevent cuts in government funding. Any reduction in government spending is generally referred to by such groups as “austerity”, meaning that only increases in spending are deemed morally justifiable, regardless of the economic context.

This measure will see the government liquidate more secure assets, like gold and foreign currencies, which governments store for cases of acute economic crisis, and can use to back up their debts.

This will result in less secure debt servicing in South Africa, as well as inflation. But hedge fund manager Kim Silberman suggests using gains from reserves to offset the economic effects of money printing.

Hedge fund managers and other financial institutions generally benefit from inflation, because of a concept known as the Cantillon Effect, in which the first recipient of newly printed currency (in most cases, financial institutions) receives the money at its present value, while the rest of the economy gets the money at a lower value, as its entry into the market reduces its value.

GFECRA’s value was R497bn on November 23, according to the governor of the South African Reserve Bank.

The Central Bank, part of a global network of banks, whose policies are shaped by the Bank of International Settlements in Switzerland, is engaging with Treasury on this matter, seeking international expertise. The potential withdrawal amount, timeframe, and associated costs are being determined.

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