Address by Dr Chris Stals,Governor of the South African Reserve Bank,at the International Conference: "South Africa and the Emerging Markets", organised by the Department of Economics, Faculty of Commerce and Administration of the University of Durban-Westville Sandton.  1. The task of monetary policyThe task of monetary policy is to maintain a stable financial environment that will be conducive for sustainable economic growth and development. There is fairly general consensus in the world of central banking about the goals and objectives of monetary policy, but there will always be differences of opinion on various possible alternative combinations of monetary policy instruments that could be used to achieve the ultimate goal, or on priorities that could be given to various intermediate targets within the overall objective.There is also fairly general consensus that the extent of overall financial stability in a country should be measured by the rate of inflation (the "internal" value of the currency), or by changes in the exchange rate (the "external" value of the currency). Monetary policy therefore has the task to protect the value of the currency in the interest of sustainable economic growth, and a successful monetary policy will usually be reflected in a low rate of inflation and/or a stable exchange rate.To achieve this objective, monetary policy must operate within a restricted and clearly defined financial environment wherein consistent, and, at times, temporary inconsistent, inter-relationships between various finan-cial aggregates must be understood and respected. To protect the value of the currency, monetary policy must assume a realistic approach to acceptable changes in aggregates such as the total and the various components of the money supply, bank credit extension to both the public and private sectors, the level of interest rates and the shape of the yield curve, the exchange rate and the official foreign reserves of the country.For the sake of transparency, consistency and a better understanding of their actions, central banks often link monetary policy decisions to one selected core variable, such as the money supply or domestic credit extension (dce). This, however, does not mean that changes in the other financial aggregates can be ignored or are not of any relevance in the implementation of the total package of monetary policy.In the case of South Africa, monetary policy decisions were linked for more than a decade to changes in the M3 money supply. This policy served the country well, especially as long as the domestic financial markets were relatively isolated from international markets, and international capital flows were determined mainly by non-economic considerations, and by exchange controls. In the circumstances, there existed a more stable relationship between changes in the money supply and total domestic expenditure, and therefore also between the money supply and inflation.During the period of money supply targeting, the Reserve Bank obviously also had to take account of increases in total bank credit extension, of the level of interest rates, and of the amount of liquidity available at any time within the banking system. The Bank had to use the instruments at its disposal, such as minimum cash reserve requirements, conditions of discount window facilities, interest rates charged by the Bank on its loans, and open market operations, to ensure that its money supply guidelines would be achieved.The Bank has recently moved away from the more formal money supply targeting approach, but must still endeavour to keep the rate of growth in M3, and the rate of growth in bank credit extension, within limits that will be consistent with the objective of protecting the value of the currency. Against the background of the liberalisation of the South African financial markets, and the gradual integration of South Africa in a very volatile global financial environment, it has, however, become extremely difficult to put meaningful quantitative values to the major financial aggregates that will produ