Notes for Presentation by Dr Chris Stals, Governor of the South African Reserve Bank, to the NEDLAC Executive Council, Johannesburg  1. The mandate to the South African Reserve BankThe South African Reserve Bank was established in 1921 in terms of a special Act of Parliament. At that time, central banks existed mainly in Europe, and the SA Reserve Bank was only the fourth central bank founded outside Europe. There already existed central banks in the United States of America, Japan and Java. Since its establishment, the Reserve Bank was always privately owned. Today, the Bank has more than 700 shareholders. The shares of the Bank are listed on the Johannesburg Stock Exchange and, in terms of the Act, no individual shareholder is allowed to hold more than one-half per cent of the capital of the Bank. The Bank may also never pay a dividend of more than 10 per cent per annum on the nominal value of its capital. The market price of the share therefore behaves like a government bond with a 10 per cent coupon.The Bank is managed by a Board of 14 Directors, seven of whom are elected by the shareholders to represent them on the Board. Without holding any shares in the Bank, the Government (President) has the right to appoint the other seven Board members. The seven appointed by the President includes the Governor and three Deputy Governors, who are full-time executive members, plus three part-time Directors. The functions of the Bank changed over time. When the Bank was originally established in 1921, its main task was to develop money and capital markets and a banking system in South Africa that would be independent of London. Today its main task, as defined in terms of the South African Reserve Bank Act and in the Constitution of the Republic of South Africa, is to defend the value of the rand, that is, to keep inflation as low as possible. This is very much in line with contemporary central banking all over the world. Since 1980, most central banks have accepted a similar mission. The latest example is perhaps the People's Bank of China, whose mandate has been changed as from March 1995 to maintain the stability of the Chinese yuan, and in this way to promote economic growth. The Board of the Reserve Bank has been given an important degree of autonomy for the execution of its duties. In terms of the Constitution:"The South African Reserve Bank, in pursuit of its primary objective, must perform its func-tions independently and without fear, favour or prejudice, but there must be regular consulta-tion between the Bank and the Cabinet member responsible for national financial matters".In terms of Section 32 of the Reserve Bank Act, the Bank must submit a monthly statement of its assets and liabilities and an annual report to Parliament. The Bank is therefore accountable to Parliament. The Governor of the Reserve Bank holds regular discussions with the Minister of Finance, and appears before the Parliamentary Standing Committee on Finance from time to time.The Board of the Bank has delegated its powers on important monetary policy decisions to a sub-committee of the Board, known as the Governors' Committee and comprising the Governor and three Deputy Governors. There is also an Audit Committee and a Human Resources Committee of the Board that meet regularly on aspects of internal finance and administration. The full Board meets four times a year.The Bank has a total staff of about 1900 people and operates from its Head Office in Pretoria and seven branches maintained in the major cities of South Africa. 2. Why must inflation be controlled?The main task of the Reserve Bank is to protect the value of the currency. The business of a modern central bank is the business of money. Central banks are given the right to issue money by their governments. That is why the Reserve Bank is accountable to Parliament and why its surplus profits are paid over to the Treasury. The right to issue money (bank notes and coin) makes the central bank a very powerful institution that can easily be misused for sectoral interests. That is why it must be a