Address by Mr TT Mboweni, Governor of the South African Reserve Bank, at the National Bank of Belgium, 9 November 2004 1.            Introduction The global economy changed considerably in recent years with important consequences for central banking. During the last half of the previous century the world economy was characterised by a process of liberalisation, deregulation and eventually globalisation, i.e. a process through which an increasingly free flow of ideas, people, goods, services and capital leads to the integration of economies and societies. Globalisation brought increasing prosperity to the countries that became involved in it. The free flow of goods, capital and people boosted incomes and raised living standards in many parts of the world. In addition, new technological advances reduced transportation, telecommunication and computation costs. These developments did not only lead to greater operational effectiveness, but also increased the ease with which national markets could be integrated globally. The more integrated world economy did not benefit all economies and all the inhabitants of the globe. Mr Horst Köhler, the past Managing Director of the International Monetary Fund recently stated that: “nearly 1,2 billion people – one fifth of humankind – continue to live in absolute poverty, with incomes less than $1 a day. In many countries, durable economic and social progress remains elusive. In most of these countries, trade has decreased in the last 20 years and on average, economic growth has not kept pace with population growth. The situation in Africa is particularly dramatic because it is aggravated by the AIDS pandemic. I believe that the fight against global poverty is the greatest challenge for stability and peace in the 21st century.” It is true that disease, unemployment and poverty reduction remain the major challenges confronting policymakers in Africa. For this reason it is encouraging that African leaders have embraced the New Partnership for Africa’s Development (NEPAD) to confront the challenges facing the continent. NEPAD is a strategic development plan that addresses the economic, social and political dimensions of Africa’s future development. It is a clear demonstration of the willingness of the leaders in Africa to take responsibility for actions needed to advance development. The vision and way forward basically consist of creating the policy environment and institutions that are necessary to translate the political commitment into economic benefits. It is further encouraging that there has been some improvement in Africa’s growth performance since the mid-1990s, albeit from a low level. The average growth rate in Africa amounted to 3,7 per cent in the period from 1995 to 2004, compared with 1,9 per cent in the preceding 10 years. This improvement was underpinned by some reduction in conflict on the continent and the achievement of greater macroeconomic stability. According to the International Monetary Fund, African economic growth is expected to rise even further to 4,5 per cent this year and to 5,4 per cent next year. While this improvement can be acclaimed, the progress needs to be accelerated. Only seven African countries achieved economic growth rates above 7 per cent during 2003 – the level required to attain the United Nations Millennium Development Goals. A continued concerted effort is therefore still required to raise living standards in Africa. 2.            Price stability An important spin-off of globalisation to the world and to some extent also to Africa has been the contribution that this process has made to the attainment of price stability. In a paper delivered at the Jackson Hole Conference of 2003, Professor Kenneth Rogoff, who was at the time the Economic Councillor and Director of Research of the International Monetary Fund, describes how globalisation has contributed to the drop of global inflation from about 30 per cent to below 4 per cent per year over the past decade. In this paper Rogoff states that although central banks deserve a lot of credit for today’