100 Years of SARB, the Pandemic and Recent Events

The South African Reserve Bank (SARB) was founded 30 June 1921, shortly after the end of World War I. Its primary objective was to restore and maintain order in the issue and circulation of domestic currency and restore the gold standard to the pre-World War I rate of exchange. Unsurprisingly, therefore, the minutes of the first Board meeting show the first order of business was ‘the purchase of property in Pretoria for £7,000 and the first order of banknotes.’ 

And so, the first major central bank outside of Europe and the US, and the first in Africa, started work.

As SARB’s press release shows with its list of challenges it have had to face, the first 100 years has been lively. ‘Over the past 100 years, the SARB has navigated through the tail end of the Spanish flu as well as the Great Depression, the Second World War, the abandonment of the gold standard, the introduction of the rand, the oil crisis, the end of the Cold War, the end of apartheid, and several financial and economic crises.’ 

Commemorative circulating coin

To commemorate its anniversary, SARB has issued a new circulating R5 coin. The design of the coin includes images of coins issued in the last 100 years.

© South African Reserve Bank.

SARB has now enhanced its currency app to include topics on currency and the economy, and to educate the public about the role of the SARB.

The last year has seen it have to face the COVID-19 pandemic and, in the last few weeks, severe dislocation from disorder in Gauteng and KwaZulu-Natal provinces.

The recent lawlessness has seen about 1,400 ATMs and nearly 300 bank branches and post offices damaged or destroyed. The scale of the damage means replacement or repairs will take a long time even when order is restored. The resupply of working ATMs will also be delayed until safety can be assured.

Given the role of ATMs in a cash-based society, this level of destruction is likely to severely affect cash circulation. The Banking Association of South Africa has said that beneficiaries of the monthly grant money provided by the South African Social Security Agency will be affected in these two provinces by the disruption to ATMs and branches.

SARB has issued notices warning people not to accept banknotes that are stained with dye, which is released from ATM protection systems.

Annual Report 2020/21 – the pandemic year

SARB is responsible for ensuring the cost-effective availability and integrity of currency. It is required to optimise the currency supply chain and enhance the quality of notes and coins. SARB succeeded in meeting the order requirements of the cash industry 100% on-time and in-full.

SARB also saw the incidence of counterfeits, measured in parts per million of notes (ppm) in circulation, fall for a third year running to 5.68, significantly lower than its target of less than 12 ppm. In 2019/20 the figure was 10.76, and in 2018/19 8.37.

Both of SARB’s manufacturing subsidiaries managed to maintain production through the pandemic, although banknote and coin volumes were down and production was disrupted. The contribution to group profits of both South African Banknote Company (SABN) and the South African Mint were sharply down, 43% and 67% respectively.

Banknote production

SABN produced 974 million notes and delivered 892 million. It generated a net profit before tax of ZAR 84 million, down from ZAR 147 million in 2019/20, and an EBITDA of ZAR 153 million, down from ZAR 189 million the previous year. Profit was down due to lower production volumes and high fixed costs.

The value of notes in circulation rose 8% from ZAR 149 billion to ZAR 161.5 billion. The cost of new banknotes fell 10% from ZAR 1,248 to ZAR 1,121 million.

South African Mint

The South African Mint has a capacity of 2 billion coins and is a major exporting mint. It delivered its full order to SARB, 811 million coins generating EBITDA of ZAR 133 million, compared with a budget of ZAR 97 million. Its profit before tax was sharply down compared with 2019/20 at ZAR 672 million. In 2019/20 it had been ZAR 2.2 billion.

The drop in profit was driven by exports being hampered by the pandemic, only being able to supply collectables for eight months of the year and having to deprioritise the supply of bullion coin. The Mint exports 70% of its collectable production and managed a record year even with only eight months of supply. It issued the new Leopold and Buffalo coins. It had to delay the issue of a 24-carat gold bullion coin.

The value of coins in circulation rose 5.6% from ZAR 6.4 billion to ZAR 6.8 billion. The cost of new coin issue rose 38% from ZAR 468 million to ZAR 646 million.

Work on CBDCs

In 2018 South Africa started work on a proof-of-concept project, known as Project KhoKha, for the wholesale payment of interbank settlements using tokenised South African rand on distributed ledger technology (DLT) infrastructure.

This Central Bank Digital Currency (CBDC) project allowed SARB to learn about the practicalities of implementing this technology, the legal and regulatory requirements and the broader economic impact of the project.

Project KhoKha II is now starting, investigating the issue, clearing and settlement of debentures on DLT to understand the policy and regulatory challenges.

SARB is also now running a retail CBDC project for domestic use. The project will investigate design considerations, policy impacts, intended and unintended consequences, supportive legal and regulatory requirements and processes for monitoring CBDCs.

SARB is looking to learn from the experience of other central banks, organisations and associations actively working on CBDCs.