Reserves Management and Foreign Exchange Operations

Reserves management
 
Gold and foreign exchange reserves management

The SARB’s Gold and Foreign Exchange Reserves Management Investment Policy governs the management of reserves. Reserves are managed within the SARB’s overall risk tolerance framework, and the related strategic benchmarks and targets are encapsulated in Strategic Asset Allocation. A three-tier governance structure clearly segregates the responsibilities for executive authority (Governors’ Executive Committee), strategic management (Reserves Management Committee) and portfolio management (Financial Markets Department). External fund managers manage a portion of the foreign exchange reserves to enhance the internal reserves management capabilities and diversify risk and return. 
 

Management of gold reserves

The SARB has managed and held gold reserves since 1925 and purchased nearly all the locally produced gold. This involvement with gold has, of course, evolved. Currently, the SARB’s activities in gold are much more akin (by design) to those of other central banks.

Following the announcement by the Minister of Finance on 12 December 1997, South African gold producers could elect to sell all of their output themselves to approved counterparties. This dispensation was granted provided that the SARB (on behalf of the Minister of Finance) gave the necessary exemption from the provisions of the Exchange Control Regulations.

Statement of Commitment to the Global Precious Metals Code

The South African Reserve Bank (SARB) has reviewed the content of the Precious Metals Global Code (Code) and acknowledges that the Code represents a set of principles generally recognised as good practice in the wholesale precious metals market (market). The SARB confirms that it acts as a market participant as defined by the Code, and is committed to conducting its market activities (activities) in a manner consistent with the principles of the Code. To this end, the SARB has taken appropriate steps, based on the size and complexity of its activities, and the nature of its engagement in the market, to align its activities with the principles of the Code. 

Date: 3 July 2023

Official gold and foreign exchange reserves management investment policy

Foreign exchange operations 


South Africa adheres to a floating exchange rate policy, where the nominal exchange rate is determined by market forces. However, the SARB is not indifferent to challenges posed by volatility and abrupt adjustments of the exchange rate

The Bank may get involved in the foreign exchange market to smooth out abrupt and severe adjustments of the exchange rate, to facilitate an orderly functioning of the foreign exchange market, as well as for financial stability reasons.

In implementing its foreign exchange operations, the SARB mainly conducts spot purchases to accumulate reserves and to service clients’ foreign exchange needs, while foreign exchange swaps are used to manage domestic money market liquidity. Gold and foreign exchange reserves (customarily denominated in the major currencies) are the official public sector foreign assets that are readily available and typically held to:

  • service South Africa’s foreign exchange liabilities;
  • maintain confidence in South Africa’s monetary, financial stability and exchange rate policies; and
  • protect the economic well-being of South Africa in the event of an external shock.

Maintaining an adequate level of reserves boosts investor confidence, thereby helping to reduce the likelihood of capital outflows.

Foreign exchange reserves are accumulated through open market purchases, when market conditions allow, that is, without unduly influencing the exchange rate or adding to volatility in the market. In exceptional circumstances, the SARB directly purchases a portion of foreign direct investment inflows, flows related to mergers and acquisitions, and proceeds from government foreign currency issues.