Here's a promise that can really pay

Wednesday, 28 September 2011

I turned 50 last week, which in turn has led to a larger-than-usual period of reminiscing. I remember when I was a kid, our country’s money had words emblazoned on it: “I promise to pay the bearer on demand at Pretoria”, signed by the governor of the Reserve Bank (TW de Jongh at the time, as I recall). It was an undertaking that you could go to the Reserve Bank, give in your bank note, and get the corresponding value in gold or silver or something that had real value.

Half a century later, I have Tito Mboweni’s and Gill Marcus’s autographs on pictures of rhino and elephant and lion in my wallet. I’m not sure what’s the point of those signatures other than to show that those worthies are able to write. The Gills are worth a lot less now that the Titos were when they were new. The Titos in turn were worth less that the Stals that preceded them (although the Stals had dropped madly for a while during the Asian crisis of 1998).

This week, the Gills have plunged a further 20 percent against the US dollar as economists go crazy trying to predict what’s going to happen with the mess that is Europe.

The current scurry has been prompted by the struggling Europeans speculating about the possibility of emerging market economies coming to their assistance. Now of course, there’s only one emerging market that has the wherewithal to do that…

Except China has no intention of buying euro-zone bonds. China Investment Corporation Vice Chairman Gao Xiqing said the company can’t be a “saviour” of others because it must keep a certain level of profitability. Chinese Premier Wen Jiabao called on developed countries to first put their own houses in order. He said China can best contribute to a global economic recovery by ensuring steady growth at home.

I’m in Beijing as I write this, having flown in from Hong Kong this morning. The Chinese today unveiled a new vending machine here in the middle of a busy shopping district in Wangfujing Street. Stick in cash or a bank card and you can buy gold.

I’m not talking pissant Krugerrands, I’m talking real gold bars or coins up to 2,5 kilograms or 1 million yuan (R1,2 million).

What a concept! Allow your own citizens to invest their money as they see fit instead of the subterfuge of needing to first convert it to jewellery or Krugerrands or teeth fillings.

And this, in a nutshell, summarises why the Chinese economy has been chugging along steadily, year after year. It has been based on common sense values of hard work and saving and not spending what you haven’t got.

I think the Chinese allowing their citizens to buy gold is absolutely brilliant. For far too long, we as South Africans have been lamenting the fact that we produce gold and diamonds and then ship those raw materials out of the country only to have those remanufactured into jewellery and shipped back to us.

No one stops to notice that it is illegal for us as citizens to hold raw gold or uncut diamonds. And if that’s the case, how the flipping hell are we supposed to build up an indigenous mass-based jewellery production industry if we can’t get the raw materials?

So why not follow the Chinese example? Allow our citizens to spend their money directly on gold as they see fit. This will have the effect of boosting confidence in the rand, as well as allowing the currency to find a new natural level. It will also keep the raw materials inside the country, potentially sparking a new jewellery industry.

And Gill Marcus’s signature will finally have real value.