This article was first published by Rational Standard on 21 August 2025
South Africans increasingly find that their money buys less each month. Food, transport and electricity prices are rising, while incomes remain stagnant. Government officials offer a stream of explanations: exchange rates, oil prices, retailer mark-ups, global conflicts. Yet these all obscure the fundamental cause. Inflation is not caused by prices rising. It is caused by printing money.
The most direct and revealing measure of money creation is M0, the monetary base. This includes all notes and coins in circulation, as well as reserve balances held by commercial banks at the South African Reserve Bank. Over the last financial year, M0 rose from R376.8 billion (Feb 2024) to R484.2 billion (Feb 2025) – an increase of 28.5 percent.
The dilution of value
When new money is created, it does not arise from saving, production or trade. It is created out of thin air. Yet it enters an economy in which people already hold money earned through effort. As this artificial money spreads, the money supply increases while the quantity of goods remains unchanged. Every existing rand becomes worth less. Prices rise not because goods are scarcer, but because the money itself has been debased. The value held by those who saved, budgeted or worked for their rands is quietly reduced.
This is not new. In earlier centuries, rulers clipped small slivers of metal from gold and silver coins before sending them back into circulation. The coins looked the same but contained less metal. People soon realised their money had lost value, not through street theft, but through official tampering at the mint. Today the Reserve Bank changes digital balances instead of clipping coins. Yet the result is identical: people’s money holds less value because there are more rands in circulation.
The Cantillon Effect in practice
This silent transfer of purchasing power is known as the Cantillon Effect: a stealth tax imposed without legislation or transparency. Between February 2019 and February 2025, the Reserve Bank increased the monetary base (M0) from R258.5 billion to R484.2 billion, an 87 percent expansion. This was a deliberate and extraordinary increase in the supply of base money, and it has driven prices upward across the economy.
Those on fixed wages, pensions or state grants cannot adjust their income as quickly as prices rise. They fall permanently behind. Every South African is experiencing it. Everything has become more expensive and hurts poor people the most. Their purchasing power is quietly transferred to those who receive the newly created money first: government departments, contractors and politically connected firms.
The delayed cost of inflation
The inflation set in motion by M0 expansion is often masked by time lags. Artificial credit expansion, along with changes in interest rates and exchange rates, is driven by earlier increases in the monetary base. By the time the public feels the effect through higher prices, those who benefited from the new money have already spent it. Economists who focus only on CPI or broad money growth miss the root cause. M0 is the cause; rising prices are the result.
Inflation rewards the politically connected at the expense of the honest. It punishes saving, distorts investment and undermines confidence in money itself. As the currency weakens, people turn, rightly, to foreign exchange, cryptocurrencies and hard assets, withdrawing their trust from the rand and accelerating its decline.
Restoring sound money
To protect the value of honest labour and restore sound money:
- Legally constrain the Reserve Bank’s ability to expand M0, allowing it only within strict, rule-bound limits based on real reserves.
- Remove all barriers to using alternatives to the rand, including foreign currencies, commodity-backed money and digital instruments.
- Restore a gold-backed rand, end the state monopoly on money and return value to those who earn it.
Inflation will end only when the expansion of M0 ends. There is no shortcut, no scapegoat and no substitute for sound money.
