There are a number of key roles that the Bank plays in the management of the South African money and banking system. These are:
Formulation and implementation of monetary policy
The Bank is responsible for the monetary policy of South Africa. Monetary policy can be defined as the measures taken by monetary authorities to influence the quantity of money and the rate of interest in a country, with a view to achieving stable prices and facilitating full employment and sustainable economic growth.
South Africa's monetary policy is conducted within an inflation targeting framework and the refinancing system is the mechanism used by the Bank for the implementation of monetary policy.
Provision of Liquidity to Banks
The Reserve Bank provides liquidity to banks during periods of temporary shortages of cash. This function is referred to as the Bank’s “lender-of-last-resort lending activities”.
This function implies giving assistance to a bank facing liquidity problems. Such assistance is only given after a full analysis of the problems afflicting such a bank and the reasons they arose. The assistance will only be given on specific conditions, and its purpose is to prevent the bankruptcy of the bank receiving assistance, and/or avoid the danger of problems spreading to other banks through a “run on the bank”.'
A bankrupt bank will often not be able to repay its depositors, and the main purpose of special assistance is therefore to protect depositors. However, such assistance is never guaranteed or given automatically, and banks may accordingly go bankrupt, leading to severe hardships for depositors who lose their deposits at such a bank. The maintenance of stability in the banking system is, therefore, of the utmost importance to any country.
Banknotes and Coin
The Reserve Bank has the sole right to make, issue and destroy banknotes and coin in South Africa. The SA Mint Company, a subsidiary of the Bank, mints all the coins on behalf of the Reserve Bank. The SA Bank Note Company, another subsidiary of the Bank, prints all banknotes on behalf of the Bank.
The Reserve Bank is responsible for the wholesale distribution of banknotes and coin, whereas banks distribute banknotes and coin to their branch offices to ensure availability to the public. In order to perform this function, the Reserve Bank has seven branch offices (Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria North). These branches are responsible for ensuring the availability and an adequate supply of good quality notes to meet the public’s demand, and to replace soiled notes. The branches also settle claims for mutilated banknotes.
The branches of the Bank, the South African Police Service and the commercial banks also work together to combat the counterfeiting of banknotes.
Banker of other Banks
The Reserve Bank acts as custodian of the cash reserves that banks are legally required to hold as well as those they prefer to hold voluntarily with the Bank. The Bank has the authority to change the minimum cash reserves that banks are required to hold and can use such adjustments to influence bank liquidity and the amount of money in circulation.
Settlement of interbank claims
The Reserve Bank provides for final real-time electronic settlement of interbank obligations, emanating from non-cash payments (e.g. cheques) made in the economy, via the South African Multiple Option Settlement (SAMOS) system. In addition, the Bank oversees the safety and soundness of the payment system through the introduction of settlement risk reduction measures as and when required.
The settlement risk reduction measures are aimed at minimising possible systemic risk emanating from, inter alia, the settlement default (inability or lack of funds to settle obligations) of one or more settlement banks.
The Reserve Bank is responsible for bank regulation and supervision in South Africa. The purpose is to achieve a sound, efficient banking system in the interest of the depositors of banks and the economy as a whole.
This function is performed by issuing banking licences to banking institutions, and monitoring their activities in terms of either the Banks Act (No. 94 of 1990), or the Mutual Banks Act (No. 124 of 1993) and the regulations relating thereto.