Address by Dr Chris Stals, Governor of the South African Reserve Bank,at the Twenty-First Annual Investment Conference of Société Générale Frankel Pollak (Pty) Ltd Johannesburg.  1. IntroductionThe debate on the independence of central banks is, fortunately for both governors of central banks and Ministers of Finance, gradually losing its momentum. The discussions were often misguided and created the misleading impression that central bankers had a desire to be completely isolated from their political masters, and that monetary policy objectives could and should be pursued in complete isolation from fiscal and other macroeconomic policies.This is, of course, not realistic. Monetary policy is but part of the overall macroeconomic strategy pursued by governments. Monetary policy must, after all, support the overall macroeconomic goals of governments, and must be applied in a consistent framework of overall macroeconomic strategy. The independence of the central bank therefore applies not to the setting of the final destination, but to the choice of the route it prefers to take to reach that predetermined destination.In the context of the South African macroeconomic policy framework, Government has decided, by means of the Constitution of the Republic of South Africa, that the task of the South African Reserve Bank shall be to protect the value of the currency. Without giving an explicit definition of what "protection of the currency" precisely means, it is clearly the intention that the Reserve Bank shall pursue a policy that will keep inflation under control.The pursuance of this objective, however, often requires unpopular measures that politicians may find difficult to force on their voters, particularly in times of pending elections. For this reason, and to ensure consistent and persistent implementation of the required financial disciplines, central banks are given independent discretionary powers on the operational procedures they regard as necessary to discharge of their responsibilities. The South African Government therefore wisely wrote into the Constitution that the South African Reserve Bank will be allowed to pursue the objective of financial stability independently and without fear of interference by pressure groups, be they from government or the private sector. In the final instance, success will be measured not by the degree of independence of the central bank, but by the results it will achieve.After the turmoil in the South African financial markets in 1996, the South African Reserve Bank had no alternative last year but to follow a restrictive monetary policy, intended to restore overall financial stability and confidence. The Bank was often criticised for not resisting the market pressures for higher interest rates, and for not providing more liquidity by using its unlimited powers to create more money. Private business people, many home-owners and heavily indebted individuals, economists with vested interests in speculative financial operations, labour unions and some politicians, criticised the Bank for its stance, and blamed monetary policy for all the ills of the economy.Seasoned central bankers, however, know that the opposition to unpopular monetary policy measures gets more intense in situations when constraints are needed most, and when the catalyst of painful monetary adjustment is indeed producing the desired results. In this game, there is no gain without pain. Wise governments know that this is the time for them to stand aloof of independent and often stubborn central bankers. South Africans can be grateful for the country's political leadership last year when the Reserve Bank was allowed to pursue unpopular policies in an unfriendly environment. The beneficial effects of the policies are now being reflected in recent encouraging developments in a number of the more important financial aggregates. 2. 1997: Year of financial consolidationAt the beginning of 1997, the Reserve Bank predicted that the year ahead would be one of consolidation. Time was needed to recover from the shocks of 1996 w