1997-11-13: Presentation of a submission by the South African Reserve Bank to the Truth and Reconciliation Commission, Johannesburg.
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2020-10-08, 08:17 PM
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The attached submission was prepared by the Reserve Bank at the request of the Truth and Reconciliation Commission. As no specific questions were directed to the Reserve Bank by the Commission, the submission covers a general overview of the tasks and functions of the Reserve Bank, and of the monetary policies applied by the Bank over the period 1960 to 1994.It should be pointed out that over this period of more than thirty years, four different Governors headed the Bank, and most of the Deputy Governors and senior staff who were responsible for monetary policy at certain times of this extended period, are no longer in the employment of the Bank. The Bank's activities were, however, extensively recorded in more than 120 Quarterly Bulletins, in more than 30 Annual Economic Reports, in the annual Chairmen's Addresses, in many statements on policy issued by the Bank over this period, and in numerous speeches and publications by senior officials of the Bank. It is obviously not possible to cover all aspects of policy over this long period in a short submission as we were expected to present to you today. The Reserve Bank would like to emphasise that the Bank was created in 1921 by the then Parliament of South Africa as a non-political impartial institution, with a mandate to manage the currency and the financial system of South Africa. The Bank is proud of its record of strict professionalism applied over a period of 76 years in the execution of its mandate. Monetary policy, with its assignment of protecting the value of the currency, must by the definition of its task, pursue a macroeconomic approach guided by overall financial developments such as changes in the money supply, in bank credit extension, in the amount of liquidity available in the banking sector, in the level and structure of interest rates, and by changes in the exchange rate and the level of the official foreign reserves.Developments outside of the strict financial area, such as in fiscal policy, trade and labour markets and political policies pursued by government, can have important effects on monetary policy, but cannot be controlled by the central bank. The Reserve Bank therefore often has to react to such external influences and adjust its monetary policies because of extraneous developments. The Bank, however, is not in a position to alter them.The political and social environment in which the Reserve Bank had to operate over the period covered by this survey influenced the monetary policies applied by the Bank in three major ways:Firstly, the Bank was tasked with the administration of exchange controls extended by the South African Government in 1960, 1975 and 1986 in direct reaction to internal political developments which placed serious constraints on South Africa's international trade and financial relations. Exchange controls were, however, not unique to South Africa - most countries in the world used exchange controls quite extensively as part of macroeconomic management in the post-World War II period. Scarce resources of foreign exchange had to be conserved and allocated for essential international payments. Today, there are about 100 countries in the world where exchange controls are still being used. Exchange controls were introduced in South Africa already in 1939 as part of the Sterling Area arrangements of that time and were extended in the 1960 to 1990 period because of the special South African situation of that time. The application of exchange controls over such an extended period of time undoubtedly created many distortions in the South African economy.A second area where the Reserve Bank was again involved as an agent for the Government was with the administration of the Debt Standstill problems of the period following upon the foreign exchange crisis of August 1985. A Debt Standstill Committee appointed by the Minister of Finance, negotiated various debt standstill agreements with foreign creditors for the gradual and orderly repayment of a restricted amount of foreign debt of South Africa. The Reserve Bank administered this arrang