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SARB vs SA Government

March 4, 2024
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FinMeUp
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FinMeUp

Who is responsible for running the country? Let's find out! 3 minute article to level up.

 

Question: The SARB is goal _____ and instrument _____

  1. dependent / dependent
  2. dependent / independent
  3. independent / independent
  4. independent /dependent

 

SARB vs Government

Unbeknownst to most, the South African Reserve Bank (SARB) and SA Government are two separate legal entities. Sure, they may be joined at the hip (much like church and state in the old days), but they still operate independently. 

The SARB is responsible for managing money in South Africa, called monetary policy (explained in the next article).

The SA Government is responsible for fiscal policy, which is a function of the public goods and services that they provide to the nation (infrastructure, education, health, etc), and the income generated to fund these operations (personal income tax, corporate income tax, VAT, etc).

More on Fiscal Policy: https://finmeup.app/post/4708362c-534f-4812-8659-c2a590e95f0f

 

Goals and instruments

Although the Government and the SARB operate as separate legal entities, the SARB must still adhere to the goals as set out by the SA Government. The goal of monetary policy: Price stability, also referred to as low inflation. The SARB is thus goal dependent, meaning that it has to focus all its operations to achieve this specific goal.

On the flip side, the SARB is instrument independent, meaning that the tools they choose to use in order to reach price stability are entirely up to them. In South Africa, the main tool used for price stability is interest rates.

In short: 

  • WHAT to do: SA Governments decision. SARB is goal dependent.
  • HOW  to do it: SARBs decision. SARB is instrument independent.

 

Question: The SARB is goal ____ and instrument _____

  1. dependent / dependent
  2. dependent / independent
  3. independent / independent
  4. independent / dependent 

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