Address by Mr T. T. Mboweni, Governor of the South African Reserve Bank at the Cape Town Press Club, Cape Town, 29 September 2003 1. Introduction Ladies and gentlemen. I thank you for this invitation to interact with you once again. We certainly live in interesting times and much has changed in the world over the past five years. These changes have also affected the South African Reserve Bank as much as any other institution which has a domestic and international focus. We constantly face new challenges and new circumstances in which to conduct our work. The fact that the SARB has risen to meet these challenges says much about the fact that it is an international institution par excellence. 2. International developments There have been two key developments over the last five years that have brought wide-ranging changes to the global social, economic and financial order. The first was the introduction of a single European currency. After decades of preparation, the Euro was introduced as a single currency on 1 January 1999 and Euro banknotes and coin were introduced on 1 January 2002. This currency change-over in Europe firmly established the European Central Bank (ECB) as the single monetary policy authority for participating countries of the European Union. The introduction of the Euro was an eventful episode in the history of Europe. Firstly, the United Kingdom, Sweden and Denmark elected not to adopt the Euro as their national currency on 1 January 2002, although they are member countries of the European Union. Secondly, the Euro/US dollar exchange rate has shown large swings since January 1999. After reaching a high of just over €1 = US$1,18 some four days after its introduction in January 1999, the exchange rate of the Euro subsequently dropped by nearly 30 per cent to just below €1 = US$0,83 by October 2000. The second major event was the attacks on the United States on 11 September 2001. These attacks highlighted a potential systemic risk to financial institutions worldwide in the event of a prolonged disruption of their operations. Multi-lateral co-ordination to ensure business continuity in the financial industry has received considerable attention since these attacks, and South Africa and the SARB are glad to be involved in these initiatives. The Bank has played an active role in the establishment of a Financial Sector Contingency Forum, which is responsible for the identification and management of potential crisis events that might threaten the stability of the South African financial sector. The Bank has also made satisfactory progress with its own business continuity planning to ensure that the head office and branch activities would continue functioning in the event of any disruption. The attacks of 11 September 2001 have also contributed to increased international economic uncertainty, which has in turn resulted in lower economic growth in developed economies. The monetary policy focus in developed economies shifted from containing inflation to avoiding unnecessarily and undesirably low inflation. This has brought new terminology to the vocabulary of central bankers and economists. 3. Domestic developments Although 1998 is a mere five years ago, so much has changed in South Africa in the interim that a brief reflection on that year is called for. By 1998, our democracy was only four years old and South Africa was still re-integrating into the international arena. However, it was already obvious then that the country's sound macro-economic policies were delivering the desired results. After a period of double-digit inflation covering the largest part of the 1970s and 1980s, inflation was in single-digits in 1995. It has averaged around 7,8 per cent per annum over the last decade. The national government was also achieving success with its sound approach to fiscal policy. While the deficit before borrowing reached a high turning point of 7,3 per cent of the gross domestic product (GDP) in the 1992/93 fiscal year, it equaled 3,7 per cent of GDP for the 1997/98 fiscal year and declined further to 2,8 per cent