Description
full project about central bank of south africa, history and other related topics of bank
INTRODUCTION
The South African Reserve Bank is the reserve bank of the Republic of South Africa. Its functions include the formulating and implementing of South Africa's monetary policy, ensuring the efficiency of South Africa's financial system and educating South Africa's citizens about the monetary and economic situation of the country. Unlike the reserve banks of most commonwealth nations, the South African Reserve Bank has always been privately owned. The South African Reserve Bank is the central bank of the Republic of South Africa. The primary purpose of the Bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability. The South African Reserve Bank is the central bank of the Republic of South Africa. The primary purpose of the Bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability. The Reserve Bank is responsible for:
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formulating and implementing monetary policy; issuing banknotes and coin; supervising the banking sector; ensuring the effective functioning of the national payment system; managing official gold and foreign-exchange reserves; acting as banker to the government; administering the country's remaining exchange controls; Acting as lender of the last resort in exceptional circumstances.
The South African Reserve Bank (SARB) and the National Treasury (ministry of finance) together constitute the monetary authority in South Africa. The SARB acts as the central bank for the country and its banking institutions, is coresponsible for formulating South Africa's monetary policy, and is largely responsible for implementing this policy. The Reserve Bank has a significant degree of autonomy in terms of South Africa's Constitution and performs its functions independently, although it holds regular consultations with the minister of finance. Its primary goal, as defined in the Constitution, is to protect the value of the currency. This requires the achievement and maintenance of financial stability. The SARB sees it as essential that South Africa has a growing economy based on the principles of a market system, private and social initiative, effective competition, and social fairness. It recognises the need to pursue balanced economic policies that enhance both development and growth. It formulates and implements policies in such a way that the country's monetary and banking system remains sound, meets the requirements of the country and its people, and keeps abreast of international financial developments. The Bank is managed by a board of 14 directors representing commerce, finance, industry and agriculture. Seven directors are elected by the Bank's shareholders. The President of South Africa appoints the governor, three deputy governors and three other directors to the board. The SARB's management, powers and functions are governed by the South African Reserve Bank Act of 1989.
History
SOUTH AFRICAN RESERVE BANK - 30 JUNE 1921
Owing to its unique role as a central bank, some people are under the impression that the Reserve Bank was the first banking institution to be established in South Africa. This is not the case however. The first bank to be established in South Africa was the Lombard Bank in Cape Town, which opened its doors for business on 23 April 1793. The earliest proposals for the establishment of a central bank in South Africa were made as far back as 1879 - calls that were repeated for the following few years, until a select committee, consisting of the ten members of Parliament was established on 31 March 1920 to examine the practicalities of establishing a central bank. Following on the recommendations of the committee, the South African Reserve Bank opened for business on 30 June 1921, making it the oldest central bank in Africa. The first banknotes were issued to the public by the Bank on 19 April 1922.
Background
The Reserve Bank is the central bank of the Republic of South Africa. The Bank was established in 1921 in terms of a special Act of Parliament, the Currency and Banking Act, 1920 (Act No. 31 of 1920). Prior to the Bank's establishment, commercial banks in South Africa issued banknotes to the public. There was however no uniformity in the legislation providing for the issuance of banknotes by commercial banks. The only
requirement was that issuing banks were obliged to convert notes held by the public into gold when banknotes were tendered at their branches. After the First World War (1914 - 1918), the price of gold in the United Kingdom rose above its price in South Africa and a profit could be made by converting banknotes into gold in South Africa and selling the gold in London. Commercial banks had to buy gold at a higher price in London (for re-import into South Africa to back their banknotes in issue) than the price at which they converted their banknotes into gold. This "obligation to trade at a loss" posed a serious threat to the ability of banks to continue meeting their obligations. To protect their financial viability, the commercial banks requested the Government to release them from the obligation to convert their banknotes into gold on demand. This led to the Gold Conference of October 1919. Following the recommendations of the Conference, a Select Committee of Parliament recommended the establishment of a central bank to assume, among other responsibilities, responsibility for the issuing of banknotes and for taking over the gold held by commercial banks. The South African Parliament accepted the recommendation of the Select Committee on the creation of a central bank and promulgated in December 1920 the Currency and Banking Act, which provided for the establishment of the Bank. Effect was given to its various provisions in the course of the next six months and the Reserve Bank opened its doors for business for the first time on 30 June 1921.
Previous Governors
Since 1921, the Bank has been served by eight Governors. The current Governor, Gill Marcus, is the first woman to lead the Bank. The Bank's previous Governors were: Mr W H Clegg, 17 December 1920 to 31 December 1931 Dr J Postmus, 1 January 1932 to 30 June 1945 Dr M H de Kock, 1 July 1945 to 30 June 1962 Dr G Rissik, 1 July 1962 to 30 June 1967 Dr T W de Jongh, 1 July 1967 to 31 December 1980 Dr G P C de Kock, 1 January 1981 to 7 August 1989 (the only person who died while still serving as Governor) Dr C L Stals, 8 August 1989 to 7 August 1999 Mr T T Mboweni, 8 August 1999 to 8 November 2009
Legislation
The South African Reserve Bank was established by Section 9 of the Currency and Banking Act, 1920 (Act No 31 of 1920) and is governed by the South African Reserve Bank Act, 1989 (Act No 90 of 1989), as amended.
Currency and Banking Act, 1920 Act No. 31 of 1920: Date of commencement - 19th August, 1920 Issue notes.
15 (1) The Bank shall have the sole right to issue bank notes in the Union for a period of twenty-five years from the commencement of this Act : Provided that, for a period of twelve months from the commencement of this Act or such longer period as may elapse before the Bank is in a position to issue its notes in substitution for the notes in circulation of other banks, the banks issuing notes in the Union at the commencement of this Act may continue to issue notes under the provisions of the several laws then in force, subject to the following conditions
a) Notwithstanding the provisions of any law in force in regard to bank notes, any bank issuing bank notes (other than bank notes issued under Act No. 6 of 1891 of the Cape of Good Hope as therein provided) shall hold gold specie to an amount equal to not less than forty per cent. of such notes in circulation ; (b) any bank issuing notes as herein provided shall, in addition to the bank note duty payable under section eight of the Stamp Duties and Fees Act, 1911, pay to the Treasury at the close of each quarter, an amount equal to three per cent. per annum on the amount of the average circulation during the preceding quarter in excess of the circulation at the thirty-first day of December, 1919. (2) As soon as the bank has notified the Treasury that it is in a position to issue notes, the other banks shall, on a date to be fixed by proclamation in the Gazette (which shall be not less than three months nor more that six months after the receipt of such notification) cease to issue or re-issue notes : Provided that the Bank shall not issue such notification before the expiration of the nine months from the commencement of this Act. (3) After the appointed date, as in sub-section (2) of this section is provided ± (a) each of the other banks shall, for a period of two years, pay to the Treasury at the close of each month an amount equal to one quarter per cent. on the amount of its average note circulation for the month ; (b) the several laws in force, relating to bank notes, shall cease to be of effect, and any securities deposited with and still held by the Treasury in respect of the notes issued under Act No. 6 of 1891 of the Cape of Good Hope shall be released as from the date when such notes are withdrawn from circulation, but subject always to the provisions of paragraph (c) of this sub-section;
(c) on the expiration of two years from the appointed date each of the other banks shall pay over to the Bank the amount of its notes still outstanding and its liability to the holders thereof shall thereupon determine and shall be assumed by the Bank
Mandate
The Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. The achievement of price stability is quantified by the setting of an inflation target by Government that serves as a yardstick against which price stability is measured. The achievement of price stability is underpinned by the stability of the financial system and financial markets. For this reason, the Bank is obliged to actively promote financial stability as one of the important determinants of financial system stability. At present, sections 223 to 225 of the Constitution of the Republic of South Africa, 1996, the South African Reserve Bank Act, 1989 as amended and the regulations framed in terms of this Act, provide the enabling framework for the Bank's operations. The Bank has a considerable degree of autonomy in the execution of its duties.
The Bank has been entrusted with the overarching monetary policy goal of containing inflation. The Bank can use any instruments of monetary policy at its disposal to achieve this monetary policy goal. The implies that the Bank has instrument independence in monetary policy implementation but not goal independence in the selection of a monetary policy goal. The Governor of the Bank holds regular discussions with the Minister of Finance and meets periodically with members of the Parliamentary Portfolio and Select Committees on Finance. In terms of section 32 of the South African Reserve Bank Act, 1989, the Bank publishes a monthly statement of its assets and liabilities and submits its Annual Report to Parliament. The Bank is therefore ultimately accountable to Parliament.
Monetary policy, money supply, inflation
The Reserve Bank implements South Africa's monetary policy and regulates the supply (availability) of money by influencing its cost. Monetary policy is guided by the SARB's assessment of current and prospective economic developments, on the one hand, and the objective of achieving and maintaining financial stability, on the other. Consistent combating of inflation is a cornerstone of policy. The Reserve Bank adopted a formal inflation-targeting policy framework in 2000.
Monetary policy is set by the Reserve Bank's monetary policy committee, which comprises the SARB's governors and other senior officials and meets every six weeks.
Central bank, custodian of reserves The SARB acts as the central bank for the country and its banking institutions. It provides accommodation to banks and is the custodian of the statutory cash reserves which all registered banks are required to maintain. It also provides facilities for clearing and settlement of inter-bank obligations. In 1998 the SARB implemented a system of repurchase transactions (repos) as the main instrument for managing liquidity in South Africa's money market. The repo rate, the price at which the central bank lends cash to the banking system, has become the most important indicator for short-term interest rates. The repurchase agreements entered into between the Reserve Bank and banks in South Africa are conducted on the basis of an outright buy-and-sell transaction, with full transfer of ownership of underlying assets. The system also provides for a "marginal lending facility", available to banks at their initiative to bridge overnight liquidity needs. The marginal lending facility forms an integrated part of the South African Multiple Option Settlement (Samos) system, which also came into operation in 1998. This enables banks to make payments to and receive payments from the Reserve Bank. The Reserve Bank has various instruments to achieve its objectives. These include changes in the marginal lending facility; open-market transactions, including selling its own debentures; changes in requirements with regard to cash reserves of banking institutions; and controlling the liquidity in the money market through repurchase transactions. The Bank undertakes national and international transactions on behalf of the state, and acts for the government in transactions with the International Monetary Fund. The Bank is the custodian of the greater part of South Africa's gold and other foreign exchange reserves. The Reserve Bank controls the South African Mint Company, and issues banknotes printed by the South African Bank Note Company, a wholly owned subsidiary of the Bank.
Functions
The issuing of banknotes was from its inception an important function of the Bank. The right to issue banknotes was initially granted to the Bank for 25 years, but since 1944 the Bank has had the sole right to issue banknotes in South Africa. Notes issued by the Bank were redeemable on demand in gold specie (physical gold, e.g. bars or coins) or gold certificates (i.e. a Gold Standard). However, financial problems early in the 1930s forced South Africa off this Gold Standard, and after 28 December 1932 banknotes could no longer be redeemed in gold. In addition to the issuing of banknotes, a number of other functions were also entrusted to the Reserve Bank at or shortly after its inception:
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making loans or advances on current account to defined customers and against specified security; being custodian of the cash reserves of other banks (e.g. commercial banks) in South Africa; being lender of cash to banks in the event of a shortage of liquidity; performing the clearance and settling of financial claims of banks on one another, e.g. the transfer of funds between two banks owing to the deposit of a cheque of bank A at bank B; and Being custodian of the major part of the country¶s gold and other foreign-exchange reserves. Formulating and implementing monetary policy; Issuing banknotes and coin; Supervising the banking system; Ensuring the effective functioning of the national payment system (NPS); Managing official gold and foreign-exchange reserves; Acting as banker to the government;
In 1927 the accounts of the Government were transferred to the Bank, establishing it as the Government¶s banker. The primary function of the Reserve Bank is to protect the value of South Africa's currency. In discharging this role, it takes responsibility for:
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Ensuring that the South African money, banking and financial system as a whole is sound, meets the requirements of the community and keeps abreast of international developments; Assisting the South African government, as well as other members of the economic community of southern Africa, with data relevant to the formulation and implementation of macroeconomic policy; and Informing the South African community and all stakeholders abroad about monetary policy and the South African economic situation.
Reserves Management
The official gold and foreign exchange reserves of the Republic of South Africa are held and managed by the Bank. The Financial Markets Department is responsible for the management of the reserves in accordance with the criteria set out in the Bank's Investment Policy and Guidelines.
Reserves play a key role in ensuring that the country will be able to:
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Cover its external operational needs; Service the country¶s foreign exchange liabilities; Cover any foreign currency net imbalances in the balance of payments, and Maintain confidence in the country¶s monetary and exchange rate policies.
Objectives
The Bank's Investment Policy provides the strategic and operational framework and defines the criteria and objectives for the management of reserves. The management of reserves is guided by the risk tolerance of the Bank and implemented through the Strategic Asset Allocation (SAA). The SAA encapsulates the strategic benchmarks for the management of the reserves and specifies the target duration for the reserves. The investment objectives in order of priority are:
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Capital preservation Safety of principal is the foremost investment objective. Investments shall be undertaken in a manner that seeks to preserve the capital of the overall portfolio over the investment horizon subject to the appropriate risk constraints; Liquidity Investment management shall seek to ensure that adequate reserves are available to meet obligations as they fall due. In order to maintain sufficient liquidity, reserves shall be invested largely in securities with an active secondary market; and Returns Subject to the capital preservation and liquidity constraints stated above, the reserves shall be invested with the objective of achieving a competitive market rate of return on the reserves consistent with the investment objectives and risk constraints.
Each of these objectives has specific liquidity requirements and investment horizons. Consequently the reserves are segregated operationally into sub-portfolios, known as tranches, for investment management purposes.
Reserves adequacy
The most commonly asked question is ³what is an adequate level of reserves?´ Gupta and Agarwal (2004) and Wijnholds and Kapteyn (2001) discuss a number of factors that affect the appropriate level of official reserves, and propose a benchmark for each factor, where appropriate. These factors include:
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Economic size Although there is no explicit reserves/GDP ratio guideline, reserves are expected to rise with population and real GDP per capita. However, since the reserves/GDP ratio does not consider the structure of the economy, it is not really an appropriate benchmark for an optimal level of official reserves. Current account vulnerability The higher the trade openness of a country, the higher the need for reserves. The conventional benchmark in this regard is that official reserves should cover at least three months¶ worth of imports, although some studies suggest percentages of reserves/imports of between 30 and 50 per cent. The more volatile the trade flows of a country, the higher the requirement. This criterion is more important for low-income developing countries with a fairly low involvement in international financial markets. Therefore, as long as official reserves cover three months¶ of imports, this measure can be ignored in further analyses. Capital account vulnerability Greater financial openness can be associated with higher crisis vulnerability, and thus influences the demand for official reserves. Ratios that are used to measure the adequacy of official reserves for capital account vulnerability include reserves/foreign portfolio investment and reserves/total or short-term foreign debt. The IMF includes in its definition of short-term debt any loans with an initial maturity of less than one year, longer-term loans with a remaining maturity of less than one year, servicing cost (capital and interest) on longer-term loans as well as investments by foreigners in domestic debt securities. Possibility of capital flight The greater the potential for resident-based capital flight from domestic currency, the higher the required level of official reserves. Ratios of reserves to monetary aggregates can be used to provide for this. Since potential capital flight is difficult to quantify, some kind of proxy has to be used for this risk. One approach, followed in the IMF model (Wijnholds and Kapteyn), is to include a specified percentage of the domestic money supply as part of the optimal level of reserves. The argument is that residents would have to convert their Rand deposits to foreign currency before taking it out of the country. The percentage of domestic money supply can vary, but five per cent is regarded as sufficient for a country with a floating exchange rate and a relatively low risk of capital flight.
Reserves management framework
Reserves are managed using an enhanced indexation strategy. This is a hybrid between active and passive management that suits the Bank's conservative objectives. Performance measurement and risk monitoring are carried out on all the portfolios on a daily and monthly basis. Risk considerations are a key theme running through all reserves management decisions. Risk management is largely based on detailed investment guidelines, limiting the markets and securities in which portfolios can be invested, as well as the currency exposures and deviations of duration from the benchmark portfolios. The purpose of risk management emanating from reserves management operations is to protect the value of the country¶s gold and foreign exchange reserves against adverse market conditions, while opportunistically taking positions to enhance returns. Reserves management practices at the Bank are aligned to the guidelines for foreign exchange reserve management released by the International Monetary Fund (IMF) in September 2001: Guidelines for Foreign Exchange Reserve Management, which outlines sound reserve management practices for member countries.
Philosophy
Business Philosophy
The Bank accepts that the credibility of its policy and actions is a prerequisite for the attainment of its goals and that such credibility can only be achieved and maintained through independent action, firmness of principle, resoluteness and fixed intent. The Bank ensures, through the application of modern management practices and technology, that all its activities are conducted effectively and efficiently.
Personnel Philosophy
The Bank believes that its employees should find working for the Bank a stimulating and personally enriching experience, and consequently accepts co-responsibility for the development of each employee's full potential. Career progress is based primarily on the contribution made by the individual towards the fulfillment of the responsibilities of the Bank. The Bank recognises that equal opportunities for all, irrespective of ethnicity, race, gender, disability or religion, should be pursued. The Bank accepts that only through the loyalty and dedication of its employees will it be able to achieve its goal and fulfill its mandate.
Banker and Advisor to Government
Banker to Government
The Bank provides banking services to the central Government, although this function has been trimmed down after the Government began holding cash balances with other banks. The Bank does not provide banking services to provincial governments, local authorities or state enterprises. The Bank is, however, responsible for the movement of government balances to, from and between other banks. Such movements have an effect on the cash holdings of banks and, therefore, serve as a convenient additional instrument for managing the liquidity of banks. The Minister of Finance has delegated to the Governor and/or a Deputy Governor as well as to the General Manager of the Financial Surveillance Department (and to other officials in the Department), all the powers, functions and duties assigned to and imposed on the Treasury under the Exchange Control Regulations (with certain exceptions).
Administration of Exchange Controls
The Financial Surveillance Department is responsible for the day-to-day administration of exchange control. The Minister of Finance has also appointed certain banks to act as Authorised Dealers in foreign exchange. This appointment gives these banks the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department. Authorised Dealers are not agents for the Financial Surveillance Department but act on behalf of their customers. Exchange control policy is determined by the Minister of Finance (or even Government/cabinet in the broader sense). The Bank, therefore, merely acts as an advisor to the Minister of Finance.
Management of the South African money and banking system
There are a number of key roles that the Bank plays in the management of the South African money and banking system. These are:
Formulation and implementation of monetary policy
The Bank is responsible for the monetary policy of South Africa. Monetary policy can be defined as the measures taken by monetary authorities to influence the quantity of money and the rate of interest in a country, with a view to achieving stable prices and facilitating full employment and sustainable economic growth. South Africa's monetary policy is conducted within an inflation targeting framework and the refinancing system is the mechanism used by the Bank for the implementation of monetary policy.
Provision of Liquidity to Banks
The Reserve Bank provides liquidity to banks during periods of temporary shortages of cash. This function is referred to as the Bank¶s ³lender-of-last-resort lending activities´. This function implies giving assistance to a bank facing liquidity problems. Such assistance is only given after a full analysis of the problems afflicting such a bank and the reasons they arose. The assistance will only be given on specific conditions, and its purpose is to prevent the bankruptcy of the bank receiving assistance, and/or avoid the danger of problems spreading to other banks through a ³run on the bank´.' A bankrupt bank will often not be able to repay its depositors, and the main purpose of special assistance is therefore to protect depositors. However, such assistance is never guaranteed or given automatically, and banks may accordingly go bankrupt, leading to severe hardships for depositors who lose theirdeposits at such a bank. The maintenance of stability in the banking system is, therefore, of the utmost importance to any country.
Banknotes and Coin
The Reserve Bank has the sole right to make, issue and destroy banknotes and coin in South Africa. The SA Mint Company, a subsidiary of the Bank, mints all the coins on behalf of the Reserve Bank. The SA Bank Note Company, another subsidiary of the Bank, prints all banknotes on behalf of the Bank.
The Reserve Bank is responsible for the wholesale distribution of banknotes and coin, whereas banks distribute banknotes and coin to their branch offices to ensure availability to the public. In order to perform this function, the Reserve Bank has seven branch offices (Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria North). These branches are responsible for ensuring the availability and an adequate supply of good quality notes to meet the public¶s demand, and to replace soiled notes. The branches also settle claims for mutilated banknotes. The branches of the Bank, the South African Police Service and the commercial banks also work together to combat the counterfeiting of banknotes.
Banker of other Banks
The Reserve Bank acts as custodian of the cash reserves that banks are legally required to hold as well as those they prefer to hold voluntarily with the Bank. The Bank has the authority to change the minimum cash reserves that banks are required to hold and can use such adjustments to influence bank liquidity and the amount of money in circulation.
Settlement of interbank claims
The Reserve Bank provides for final real-time electronic settlement of interbank obligations, emanating from non-cash payments (e.g. cheques) made in the economy, via the South African Multiple Option Settlement (SAMOS) system. In addition, the Bank oversees the safety and soundness of the payment system through the introduction of settlement risk reduction measures as and when required. The settlement risk reduction measures are aimed at minimising possible systemic risk emanating from, inter alia, the settlement default (inability or lack of funds to settle obligations) of one or more settlement banks.
Bank Supervision
The Reserve Bank is responsible for bank regulation and supervision in South Africa. The purpose is to achieve a sound, efficient banking system in the interest of the depositors of banks and the economy as a whole. This function is performed by issuing banking licences to banking institutions, and monitoring their activities in terms of either the Banks Act (No. 94 of 1990), or the Mutual Banks Act (No. 124 of 1993) and the regulations relating thereto.
Risk Management
Owing to the unique role and functions of the Bank, risk management is not simply based on institutional risk and return considerations, but also takes into account national interest, in line with the statutory and constitutional responsibility of the Bank. The Bank also functions within an environment characterised by continuous change and uncertainty. This requires constant monitoring and analysis of, and appropriate response to, potential and actual risks emanating from the global political and economic environment. In common with most central banks, the Bank is a risk averse institution. This reflects the view that satisfactory fulfilment of its role and responsibilities could be seriously jeopardised if there were to be significant disruptions to its operations and/or damage to its reputation. The executive management of the Bank is intensely aware of the high performance standards that all role-players outside the Bank expect of the central bank. The Bank views risk management as an integral part and an essential element of good corporate governance.
Policy
The Bank has established a risk management policy to ensure that risks are managed in a co-ordinated, comprehensive and systematic manner that is consistent with internationally accepted standards and guidelines. This policy regulates all risk management initiatives and activities, and facilitates their alignment with the Bank¶s strategic and operational objectives to ensure that the risks threatening the achievement of these objectives are adequately and effectively managed at acceptable levels. The policy governs the full spectrum of strategic, financial (including credit, market and liquidity), reputational and operational risk management in the Bank. Furthermore, it specifies the risk management governance structures, general risk management principles, the Bank¶s risk appetite and tolerance, impact and likelihood requirements, risk management framework and processes, and the roles and responsibilities of all stakeholders.
Governance Structure
The Bank¶s Board is responsible for the oversight of the entire process of risk management. The Board Risk Committee, which is a subcommittee of the Board, assists the Board to ensure a dedicated focus on risk management in the Bank. The Governors¶ Executive Committee (GEC) has overall executive responsibility for risk management in the Bank and is accountable to the Board for ensuring adequate risk management structures and processes. The Risk Management Committee, which is a subcommittee of the GEC, assists the GEC with regard to its executive responsibility for risk management in the Bank.
Framework
All risk management processes and activities are conducted in terms of the Bank¶s risk management framework. The SARB Risk Management Framework details the Bank's governance
processes, risk management universe and the support structures and processes.
Risk Management and Compliance Department
A centralised risk management co-ordination function in the Bank is performed by the Risk Management and Compliance Department (RMCD). The role of the RMCD is to
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Facilitate risk management ownership by management; Provide a standardised strategic and operational risk management methodology and process; Validate that the risk management processes are adequate and effective and comply with internationally accepted risk management standards; and Ensure standardised and integrated reporting on all risk management activities and exposures to the Governors' Executive Committee via the Risk Management Committee, as well as to the Board Risk Committee.
The RMCD is also responsible for the co-ordination and facilitation of specialised operational risk management processes, including business continuity management, occupational health and safety management as well as compliance risk management. Reporting on these risk management activities to the aforementioned committees is also co-ordinated by the RMCD.
Processes
Four distinct risk management processes are used by the Bank for the management of strategic, financial, reputational and operational risk: The strategic risk management process is integrated into the strategic planning process of the Bank, during which process risks at a strategic level are identified and assessed. Financial risk is managed by the Financial Markets Department. Specialised financial risk management systems and procedures, based on best practice standards, are in place to manage financial risks pertaining to domestic and foreign-exchange market operations. Reputational risk is managed by the executive management and heads of department of the Bank, while the Head of Strategy and Communications has a specific responsibility in this regard from a communication perspective. Operational risk emanating from all the operational activities of the Bank is managed by the heads of department and their management teams. Specialised types of operational risk or operational risks with a Bank-wide impact are managed by specific structures or committees established for that purpose. These types of operational risk include
business continuity risk, information security risk, and occupational health, safety and environmental risk.
Reserve Bank shares
Since its establishment, the Reserve Bank has always been privately owned. Today the Bank has more than 660 shareholders and its shares are traded on an Over- the-Counter Share Transfer Facility market (OTCSTF market) co-ordinate within the Reserve Bank. Except for the provision of the SA Reserve Bank Act that no shareholder shall hold, or hold in aggregate with his, her or its associates, more than 10 000 shares of the total number of 2 000 000 issued shares, there is no limitation on shareholding. After allowing for certain provisions, payment of company tax on profits, transfers to reserves and dividend payments of not more than 10 cents per share to shareholders, the surplus of the Bank's earnings is paid to the Government. The Bank's operations are therefore not driven by a profit motive, but by serving the best interests of all the people in South Africa. The Bank was delisted from the JSE Securities Exchange South Africa on 2 May 2002 and a live trading facility for its shares introduced on 1 October 2005. The live trading facility operates in terms of the OTCSTF rules. As such, it is not an on screen trading facility, but rather operates by means of postal, facsimile, hand delivery or e-mail communication only.
Share price and availability
Shareholders of the Reserve Bank and prospective shareholders are advised that the speculations in the media during 2010, regarding the licensing of over-the-counter (³OTC´) market makers, has no reference to the OTCSTF system by means of which the SARB trades its shares. The Bank will, as in the past, continue to trade its shares by means of the OTCSTF.
Shareholders Index Report
The Shareholders Index Report constitutes a shortened version of the electronic register of shareholders which is maintained at the Head Office of the Bank in accordance with the Regulations relating to the South African Reserve Bank. The contents of the Shareholders Index Report are intended for general information only and users are reminded of the disclaimer that applies to the contents of this website.
A printed copy of the register of shareholders is available for inspection by directors, shareholders and members of the public during office hours, on prior arrangement and subject to any restrictions as may be determined from time to time.
Structure
The Reserve Bank is an organisation that has come into being through statute. The Bank cannot amend or change its founding structure; this can only be effected by Parliament. The South Reserve Bank Act, 1989 (Act 90 of 1989), granted management powers of the Bank to the Board of the Bank. The Reserve Bank Amendment Act, 2010 (Act No.4 of 2010) states that the Bank's Board is responsible only for the governance of the Bank. All powers and authorities not vested in the Board vest in the Governor and Deputy Governors, i.e. it is the Governor and Deputy Governors of the Bank who are responsible for the management of the Bank.
Departments
The South African Reserve Bank has fifteen departments, including the Reserve Bank college. Each Head of Department reports to either the Governor or a Deputy Governor. Collectively, the departments ensure the smooth running of the Bank and the implementation of the Bank's mandate.
Corporate Citizenship
The Bank aims to conduct its business practices in a transparent way based on ethical values, compliance with legal requirements, and respect for people, communities and the environment. Ultimately, it adds value in a unique way to society as a whole. Its corporate social responsibility activities therefore consider the entire 'footprint' that the Bank leaves in society and cover, among other issues:
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Health and safety considerations; Environmental conversation, including management of hazardous products and waste; Energy and water consumption; Educational outreach; and International and regional co-operation and training.
Board of Directors
The SA Reserve Bank Act, 1989, as amended, provides for a board of directors consisting of 15 directors. Among them are the Governor and three Deputy Governors, who are appointed by the President of the Republic of South Africa, after consultation with the Minister of Finance and the Board, initially for five-year terms. On reappointment the terms may be less than five years. Four other directors are appointed by the President, after consultation with the Minister, for three-year terms. The remaining seven directors, of whom one needs to have knowledge and skill in the field of agriculture, one in the field of labour, one in the field of mining, two in the field of industry and two in the field of commerce or finance, are elected by shareholders at an ordinary general meeting (OGM) of shareholders. These directors hold office for a period commencing on the first day after the date of their election at the OGM until the first day after the date of the OGM held during the third calendar year following the date of the OGM at which they were elected. The Governor and Deputy Governors manage the daily affairs of the Bank, since they have in terms of the Act been tasked with this responsibility. They are the only executive directors on the Board and are on a full time basis ultimately responsible for the day-today management of the South African Reserve Bank. The board of directors meets regularly to ensure that it fulfils its role of ensuring corporate governance of the Bank. The Board ensures compliance with principles of good corporate governance by, amongst other things, adopting rules and determining policies for the sound accounting, administration and functioning of the Bank, as well as by exercising the other tasks reserved for it in terms of the Act. In the process the Board utilises various committees and subcommittees, chaired by non-executive directors.
Ms G Marcus Governor
Responsibilities:
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Company Secretary and Secretariat Legal Services Department and General Counsel Internal Audit Department and Chief Internal Auditor Strategy and Communications Department, including Outreach and Economic Round Table Currency and Protection Services Department Executive Management Chair: Monetary Policy Committee Chair: Financial Stability Committee Chair: Risk and Compliance Committee Chair: Financial Stability Oversight Committee Chair: Governors' Executive Committee Chair: Board of the SARB
Member:
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Board Board sub-committees Governors¶ Executive Committee (GEC) Monetary Policy Committee (MPC) Financial Stability Committee (FSC)
Subsidiaries
To ensure the proper functioning of the Bank and the optimal discharge of its responsibilities, some of the Bank's activities have been organised in subsidiary companies. The Bank is currently the sole owner of its subsidiaries.
Corporation for Public Deposits
The Bank's first subsidiary was the National Finance Corporation (NFC), which commenced operations on 20 September 1949. The NFC was established with the aim of deepening the domestic money market, thereby ensuring the utilisation of capital in the best economic interests of South Africa. The NFC accepted as liabilities deposits from Government and quasi-government institutions, and invested mainly in Treasury bills and other government securities. The liquidity of the NFC was guaranteed in terms of an agreement that the Bank would discount its holdings of Treasury bills, as and when required, at the rates at which the NFC acquired the bills.
South African Banknote Company
When the decision was made in 1958 to print South African banknotes domestically rather than abroad as was the practice at the time, the Bank and a British banknote printer, Bradbury Wilkinson, established as a joint venture company, the South African Bank Note Company (Pty) Ltd, with the sole objective of printing banknotes for South Africa. Suitable factory premises for printing banknotes were erected and the domestic production of banknotes commenced in 1961 at the time when South Africa adopted a decimal currency. The shareholding of Bradbury Wilkinson in the joint venture company was subsequently taken over by the Reserve Bank and the South African Bank Note Company (Pty) Ltd is currently one of the four wholly owned subsidiary companies of the Bank. The South African Bank Note Company prints all the banknote denominations currently in use in South Africa it also prints banknotes for neighbouring countries. It has a separate management structure and functions as an independent subsidiary and members of its board are appointed by the board of the Bank.
South African Mint
The history of minting coins in South Africa goes back to the period when South Africa comprised four separate regions that later became provinces of the Union of South Africa. A government mint was established in Pretoria in 1890 and commenced with the domestic production of coin in 1892. After unification of South Africa in 1910 the country used British coin, as well as coin of the Zuid-Afrikaansche Republic. The latter remained legal tender until 1938, while British coin remained legal tender until 1961. Coining operations in Pretoria evolved into the South African Mint, which was established in 1923, and functioned as a division of the central government. When the Government sold the South African Mint to the Bank in 1988, it was decided to house the coining activities in a wholly owned subsidiary company, the South African Mint Company (Pty) Ltd. The South African Mint is responsible for the manufacturing of all circulation coins issued in South Africa and also produces coin for other countries. This company also produces the Krugerrand and the Natura and Protea coins. Numismatic coins are sold by the SA Mint, while the Rand Refinery has, since the inception of the Krugerrand, played a major role in its issuing. The SA Mint is an independent subsidiary with its own board (appointed by the board of the Bank) and management structure.
SARBCIC
The newest of the Bank¶s subsidiaries is the SARBCIC Ltd, a captive insurer licensed to carry out short-term insurance business in terms of the Short-term Insurance Act, 1998 (Act No. 53 of 1998) for, and on behalf of, the Bank and its subsidiary companies. SARBCIC's primary purpose is to provide an efficient risk transfer mechanism, thereby reducing dependency on external insurers and optimising expenditure on insurance over the long term. In terms of conditions for its registration, SARBCIC may only issue insurance policies to cover risks of the SARB and its subsidiary companies, including risks related to its pension and/or provident funds (firstparty risks). SARBCIC is managed and controlled by a board of directors that is appointed by the Bank. One of SARBCIC¶s directors, who is a full-time permanent staff member of the Bank, is appointed to serve as its Chief Executive Officer. The Bank is responsible for the management of the company, which includes responsibility for the investments and administration of its daily business operations.
The South African Reserve Bank College
The SARB College is an internationally recognized institution of excellence that facilitates the development of central banking competencies. The College welcomes individuals who are currently employed and nominated by their respective companies to attend the courses on offer. The South African Reserve Bank is also a registered training provider with the Banking Sector Education Authority (BANKSETA).clients include:
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South African Reserve Bank Financial sector in South Africa Central banks in the SADC region and other central banks Government and parastatals
Tertiary education institutions.
doc_396907974.docx
full project about central bank of south africa, history and other related topics of bank
INTRODUCTION
The South African Reserve Bank is the reserve bank of the Republic of South Africa. Its functions include the formulating and implementing of South Africa's monetary policy, ensuring the efficiency of South Africa's financial system and educating South Africa's citizens about the monetary and economic situation of the country. Unlike the reserve banks of most commonwealth nations, the South African Reserve Bank has always been privately owned. The South African Reserve Bank is the central bank of the Republic of South Africa. The primary purpose of the Bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability. The South African Reserve Bank is the central bank of the Republic of South Africa. The primary purpose of the Bank is to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. Together with other institutions, it also plays a pivotal role in ensuring financial stability. The Reserve Bank is responsible for:
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formulating and implementing monetary policy; issuing banknotes and coin; supervising the banking sector; ensuring the effective functioning of the national payment system; managing official gold and foreign-exchange reserves; acting as banker to the government; administering the country's remaining exchange controls; Acting as lender of the last resort in exceptional circumstances.
The South African Reserve Bank (SARB) and the National Treasury (ministry of finance) together constitute the monetary authority in South Africa. The SARB acts as the central bank for the country and its banking institutions, is coresponsible for formulating South Africa's monetary policy, and is largely responsible for implementing this policy. The Reserve Bank has a significant degree of autonomy in terms of South Africa's Constitution and performs its functions independently, although it holds regular consultations with the minister of finance. Its primary goal, as defined in the Constitution, is to protect the value of the currency. This requires the achievement and maintenance of financial stability. The SARB sees it as essential that South Africa has a growing economy based on the principles of a market system, private and social initiative, effective competition, and social fairness. It recognises the need to pursue balanced economic policies that enhance both development and growth. It formulates and implements policies in such a way that the country's monetary and banking system remains sound, meets the requirements of the country and its people, and keeps abreast of international financial developments. The Bank is managed by a board of 14 directors representing commerce, finance, industry and agriculture. Seven directors are elected by the Bank's shareholders. The President of South Africa appoints the governor, three deputy governors and three other directors to the board. The SARB's management, powers and functions are governed by the South African Reserve Bank Act of 1989.
History
SOUTH AFRICAN RESERVE BANK - 30 JUNE 1921
Owing to its unique role as a central bank, some people are under the impression that the Reserve Bank was the first banking institution to be established in South Africa. This is not the case however. The first bank to be established in South Africa was the Lombard Bank in Cape Town, which opened its doors for business on 23 April 1793. The earliest proposals for the establishment of a central bank in South Africa were made as far back as 1879 - calls that were repeated for the following few years, until a select committee, consisting of the ten members of Parliament was established on 31 March 1920 to examine the practicalities of establishing a central bank. Following on the recommendations of the committee, the South African Reserve Bank opened for business on 30 June 1921, making it the oldest central bank in Africa. The first banknotes were issued to the public by the Bank on 19 April 1922.
Background
The Reserve Bank is the central bank of the Republic of South Africa. The Bank was established in 1921 in terms of a special Act of Parliament, the Currency and Banking Act, 1920 (Act No. 31 of 1920). Prior to the Bank's establishment, commercial banks in South Africa issued banknotes to the public. There was however no uniformity in the legislation providing for the issuance of banknotes by commercial banks. The only
requirement was that issuing banks were obliged to convert notes held by the public into gold when banknotes were tendered at their branches. After the First World War (1914 - 1918), the price of gold in the United Kingdom rose above its price in South Africa and a profit could be made by converting banknotes into gold in South Africa and selling the gold in London. Commercial banks had to buy gold at a higher price in London (for re-import into South Africa to back their banknotes in issue) than the price at which they converted their banknotes into gold. This "obligation to trade at a loss" posed a serious threat to the ability of banks to continue meeting their obligations. To protect their financial viability, the commercial banks requested the Government to release them from the obligation to convert their banknotes into gold on demand. This led to the Gold Conference of October 1919. Following the recommendations of the Conference, a Select Committee of Parliament recommended the establishment of a central bank to assume, among other responsibilities, responsibility for the issuing of banknotes and for taking over the gold held by commercial banks. The South African Parliament accepted the recommendation of the Select Committee on the creation of a central bank and promulgated in December 1920 the Currency and Banking Act, which provided for the establishment of the Bank. Effect was given to its various provisions in the course of the next six months and the Reserve Bank opened its doors for business for the first time on 30 June 1921.
Previous Governors
Since 1921, the Bank has been served by eight Governors. The current Governor, Gill Marcus, is the first woman to lead the Bank. The Bank's previous Governors were: Mr W H Clegg, 17 December 1920 to 31 December 1931 Dr J Postmus, 1 January 1932 to 30 June 1945 Dr M H de Kock, 1 July 1945 to 30 June 1962 Dr G Rissik, 1 July 1962 to 30 June 1967 Dr T W de Jongh, 1 July 1967 to 31 December 1980 Dr G P C de Kock, 1 January 1981 to 7 August 1989 (the only person who died while still serving as Governor) Dr C L Stals, 8 August 1989 to 7 August 1999 Mr T T Mboweni, 8 August 1999 to 8 November 2009
Legislation
The South African Reserve Bank was established by Section 9 of the Currency and Banking Act, 1920 (Act No 31 of 1920) and is governed by the South African Reserve Bank Act, 1989 (Act No 90 of 1989), as amended.
Currency and Banking Act, 1920 Act No. 31 of 1920: Date of commencement - 19th August, 1920 Issue notes.
15 (1) The Bank shall have the sole right to issue bank notes in the Union for a period of twenty-five years from the commencement of this Act : Provided that, for a period of twelve months from the commencement of this Act or such longer period as may elapse before the Bank is in a position to issue its notes in substitution for the notes in circulation of other banks, the banks issuing notes in the Union at the commencement of this Act may continue to issue notes under the provisions of the several laws then in force, subject to the following conditions
a) Notwithstanding the provisions of any law in force in regard to bank notes, any bank issuing bank notes (other than bank notes issued under Act No. 6 of 1891 of the Cape of Good Hope as therein provided) shall hold gold specie to an amount equal to not less than forty per cent. of such notes in circulation ; (b) any bank issuing notes as herein provided shall, in addition to the bank note duty payable under section eight of the Stamp Duties and Fees Act, 1911, pay to the Treasury at the close of each quarter, an amount equal to three per cent. per annum on the amount of the average circulation during the preceding quarter in excess of the circulation at the thirty-first day of December, 1919. (2) As soon as the bank has notified the Treasury that it is in a position to issue notes, the other banks shall, on a date to be fixed by proclamation in the Gazette (which shall be not less than three months nor more that six months after the receipt of such notification) cease to issue or re-issue notes : Provided that the Bank shall not issue such notification before the expiration of the nine months from the commencement of this Act. (3) After the appointed date, as in sub-section (2) of this section is provided ± (a) each of the other banks shall, for a period of two years, pay to the Treasury at the close of each month an amount equal to one quarter per cent. on the amount of its average note circulation for the month ; (b) the several laws in force, relating to bank notes, shall cease to be of effect, and any securities deposited with and still held by the Treasury in respect of the notes issued under Act No. 6 of 1891 of the Cape of Good Hope shall be released as from the date when such notes are withdrawn from circulation, but subject always to the provisions of paragraph (c) of this sub-section;(c) on the expiration of two years from the appointed date each of the other banks shall pay over to the Bank the amount of its notes still outstanding and its liability to the holders thereof shall thereupon determine and shall be assumed by the Bank
Mandate
The Reserve Bank is required to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa. The achievement of price stability is quantified by the setting of an inflation target by Government that serves as a yardstick against which price stability is measured. The achievement of price stability is underpinned by the stability of the financial system and financial markets. For this reason, the Bank is obliged to actively promote financial stability as one of the important determinants of financial system stability. At present, sections 223 to 225 of the Constitution of the Republic of South Africa, 1996, the South African Reserve Bank Act, 1989 as amended and the regulations framed in terms of this Act, provide the enabling framework for the Bank's operations. The Bank has a considerable degree of autonomy in the execution of its duties.
The Bank has been entrusted with the overarching monetary policy goal of containing inflation. The Bank can use any instruments of monetary policy at its disposal to achieve this monetary policy goal. The implies that the Bank has instrument independence in monetary policy implementation but not goal independence in the selection of a monetary policy goal. The Governor of the Bank holds regular discussions with the Minister of Finance and meets periodically with members of the Parliamentary Portfolio and Select Committees on Finance. In terms of section 32 of the South African Reserve Bank Act, 1989, the Bank publishes a monthly statement of its assets and liabilities and submits its Annual Report to Parliament. The Bank is therefore ultimately accountable to Parliament.
Monetary policy, money supply, inflation
The Reserve Bank implements South Africa's monetary policy and regulates the supply (availability) of money by influencing its cost. Monetary policy is guided by the SARB's assessment of current and prospective economic developments, on the one hand, and the objective of achieving and maintaining financial stability, on the other. Consistent combating of inflation is a cornerstone of policy. The Reserve Bank adopted a formal inflation-targeting policy framework in 2000.
Monetary policy is set by the Reserve Bank's monetary policy committee, which comprises the SARB's governors and other senior officials and meets every six weeks.
Central bank, custodian of reserves The SARB acts as the central bank for the country and its banking institutions. It provides accommodation to banks and is the custodian of the statutory cash reserves which all registered banks are required to maintain. It also provides facilities for clearing and settlement of inter-bank obligations. In 1998 the SARB implemented a system of repurchase transactions (repos) as the main instrument for managing liquidity in South Africa's money market. The repo rate, the price at which the central bank lends cash to the banking system, has become the most important indicator for short-term interest rates. The repurchase agreements entered into between the Reserve Bank and banks in South Africa are conducted on the basis of an outright buy-and-sell transaction, with full transfer of ownership of underlying assets. The system also provides for a "marginal lending facility", available to banks at their initiative to bridge overnight liquidity needs. The marginal lending facility forms an integrated part of the South African Multiple Option Settlement (Samos) system, which also came into operation in 1998. This enables banks to make payments to and receive payments from the Reserve Bank. The Reserve Bank has various instruments to achieve its objectives. These include changes in the marginal lending facility; open-market transactions, including selling its own debentures; changes in requirements with regard to cash reserves of banking institutions; and controlling the liquidity in the money market through repurchase transactions. The Bank undertakes national and international transactions on behalf of the state, and acts for the government in transactions with the International Monetary Fund. The Bank is the custodian of the greater part of South Africa's gold and other foreign exchange reserves. The Reserve Bank controls the South African Mint Company, and issues banknotes printed by the South African Bank Note Company, a wholly owned subsidiary of the Bank.
Functions
The issuing of banknotes was from its inception an important function of the Bank. The right to issue banknotes was initially granted to the Bank for 25 years, but since 1944 the Bank has had the sole right to issue banknotes in South Africa. Notes issued by the Bank were redeemable on demand in gold specie (physical gold, e.g. bars or coins) or gold certificates (i.e. a Gold Standard). However, financial problems early in the 1930s forced South Africa off this Gold Standard, and after 28 December 1932 banknotes could no longer be redeemed in gold. In addition to the issuing of banknotes, a number of other functions were also entrusted to the Reserve Bank at or shortly after its inception:
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making loans or advances on current account to defined customers and against specified security; being custodian of the cash reserves of other banks (e.g. commercial banks) in South Africa; being lender of cash to banks in the event of a shortage of liquidity; performing the clearance and settling of financial claims of banks on one another, e.g. the transfer of funds between two banks owing to the deposit of a cheque of bank A at bank B; and Being custodian of the major part of the country¶s gold and other foreign-exchange reserves. Formulating and implementing monetary policy; Issuing banknotes and coin; Supervising the banking system; Ensuring the effective functioning of the national payment system (NPS); Managing official gold and foreign-exchange reserves; Acting as banker to the government;
In 1927 the accounts of the Government were transferred to the Bank, establishing it as the Government¶s banker. The primary function of the Reserve Bank is to protect the value of South Africa's currency. In discharging this role, it takes responsibility for:
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Ensuring that the South African money, banking and financial system as a whole is sound, meets the requirements of the community and keeps abreast of international developments; Assisting the South African government, as well as other members of the economic community of southern Africa, with data relevant to the formulation and implementation of macroeconomic policy; and Informing the South African community and all stakeholders abroad about monetary policy and the South African economic situation.
Reserves Management
The official gold and foreign exchange reserves of the Republic of South Africa are held and managed by the Bank. The Financial Markets Department is responsible for the management of the reserves in accordance with the criteria set out in the Bank's Investment Policy and Guidelines.
Reserves play a key role in ensuring that the country will be able to:
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Cover its external operational needs; Service the country¶s foreign exchange liabilities; Cover any foreign currency net imbalances in the balance of payments, and Maintain confidence in the country¶s monetary and exchange rate policies.
Objectives
The Bank's Investment Policy provides the strategic and operational framework and defines the criteria and objectives for the management of reserves. The management of reserves is guided by the risk tolerance of the Bank and implemented through the Strategic Asset Allocation (SAA). The SAA encapsulates the strategic benchmarks for the management of the reserves and specifies the target duration for the reserves. The investment objectives in order of priority are:
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Capital preservation Safety of principal is the foremost investment objective. Investments shall be undertaken in a manner that seeks to preserve the capital of the overall portfolio over the investment horizon subject to the appropriate risk constraints; Liquidity Investment management shall seek to ensure that adequate reserves are available to meet obligations as they fall due. In order to maintain sufficient liquidity, reserves shall be invested largely in securities with an active secondary market; and Returns Subject to the capital preservation and liquidity constraints stated above, the reserves shall be invested with the objective of achieving a competitive market rate of return on the reserves consistent with the investment objectives and risk constraints.
Each of these objectives has specific liquidity requirements and investment horizons. Consequently the reserves are segregated operationally into sub-portfolios, known as tranches, for investment management purposes.
Reserves adequacy
The most commonly asked question is ³what is an adequate level of reserves?´ Gupta and Agarwal (2004) and Wijnholds and Kapteyn (2001) discuss a number of factors that affect the appropriate level of official reserves, and propose a benchmark for each factor, where appropriate. These factors include:
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Economic size Although there is no explicit reserves/GDP ratio guideline, reserves are expected to rise with population and real GDP per capita. However, since the reserves/GDP ratio does not consider the structure of the economy, it is not really an appropriate benchmark for an optimal level of official reserves. Current account vulnerability The higher the trade openness of a country, the higher the need for reserves. The conventional benchmark in this regard is that official reserves should cover at least three months¶ worth of imports, although some studies suggest percentages of reserves/imports of between 30 and 50 per cent. The more volatile the trade flows of a country, the higher the requirement. This criterion is more important for low-income developing countries with a fairly low involvement in international financial markets. Therefore, as long as official reserves cover three months¶ of imports, this measure can be ignored in further analyses. Capital account vulnerability Greater financial openness can be associated with higher crisis vulnerability, and thus influences the demand for official reserves. Ratios that are used to measure the adequacy of official reserves for capital account vulnerability include reserves/foreign portfolio investment and reserves/total or short-term foreign debt. The IMF includes in its definition of short-term debt any loans with an initial maturity of less than one year, longer-term loans with a remaining maturity of less than one year, servicing cost (capital and interest) on longer-term loans as well as investments by foreigners in domestic debt securities. Possibility of capital flight The greater the potential for resident-based capital flight from domestic currency, the higher the required level of official reserves. Ratios of reserves to monetary aggregates can be used to provide for this. Since potential capital flight is difficult to quantify, some kind of proxy has to be used for this risk. One approach, followed in the IMF model (Wijnholds and Kapteyn), is to include a specified percentage of the domestic money supply as part of the optimal level of reserves. The argument is that residents would have to convert their Rand deposits to foreign currency before taking it out of the country. The percentage of domestic money supply can vary, but five per cent is regarded as sufficient for a country with a floating exchange rate and a relatively low risk of capital flight.
Reserves management framework
Reserves are managed using an enhanced indexation strategy. This is a hybrid between active and passive management that suits the Bank's conservative objectives. Performance measurement and risk monitoring are carried out on all the portfolios on a daily and monthly basis. Risk considerations are a key theme running through all reserves management decisions. Risk management is largely based on detailed investment guidelines, limiting the markets and securities in which portfolios can be invested, as well as the currency exposures and deviations of duration from the benchmark portfolios. The purpose of risk management emanating from reserves management operations is to protect the value of the country¶s gold and foreign exchange reserves against adverse market conditions, while opportunistically taking positions to enhance returns. Reserves management practices at the Bank are aligned to the guidelines for foreign exchange reserve management released by the International Monetary Fund (IMF) in September 2001: Guidelines for Foreign Exchange Reserve Management, which outlines sound reserve management practices for member countries.
Philosophy
Business Philosophy
The Bank accepts that the credibility of its policy and actions is a prerequisite for the attainment of its goals and that such credibility can only be achieved and maintained through independent action, firmness of principle, resoluteness and fixed intent. The Bank ensures, through the application of modern management practices and technology, that all its activities are conducted effectively and efficiently.
Personnel Philosophy
The Bank believes that its employees should find working for the Bank a stimulating and personally enriching experience, and consequently accepts co-responsibility for the development of each employee's full potential. Career progress is based primarily on the contribution made by the individual towards the fulfillment of the responsibilities of the Bank. The Bank recognises that equal opportunities for all, irrespective of ethnicity, race, gender, disability or religion, should be pursued. The Bank accepts that only through the loyalty and dedication of its employees will it be able to achieve its goal and fulfill its mandate.
Banker and Advisor to Government
Banker to Government
The Bank provides banking services to the central Government, although this function has been trimmed down after the Government began holding cash balances with other banks. The Bank does not provide banking services to provincial governments, local authorities or state enterprises. The Bank is, however, responsible for the movement of government balances to, from and between other banks. Such movements have an effect on the cash holdings of banks and, therefore, serve as a convenient additional instrument for managing the liquidity of banks. The Minister of Finance has delegated to the Governor and/or a Deputy Governor as well as to the General Manager of the Financial Surveillance Department (and to other officials in the Department), all the powers, functions and duties assigned to and imposed on the Treasury under the Exchange Control Regulations (with certain exceptions).
Administration of Exchange Controls
The Financial Surveillance Department is responsible for the day-to-day administration of exchange control. The Minister of Finance has also appointed certain banks to act as Authorised Dealers in foreign exchange. This appointment gives these banks the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department. Authorised Dealers are not agents for the Financial Surveillance Department but act on behalf of their customers. Exchange control policy is determined by the Minister of Finance (or even Government/cabinet in the broader sense). The Bank, therefore, merely acts as an advisor to the Minister of Finance.
Management of the South African money and banking system
There are a number of key roles that the Bank plays in the management of the South African money and banking system. These are:
Formulation and implementation of monetary policy
The Bank is responsible for the monetary policy of South Africa. Monetary policy can be defined as the measures taken by monetary authorities to influence the quantity of money and the rate of interest in a country, with a view to achieving stable prices and facilitating full employment and sustainable economic growth. South Africa's monetary policy is conducted within an inflation targeting framework and the refinancing system is the mechanism used by the Bank for the implementation of monetary policy.
Provision of Liquidity to Banks
The Reserve Bank provides liquidity to banks during periods of temporary shortages of cash. This function is referred to as the Bank¶s ³lender-of-last-resort lending activities´. This function implies giving assistance to a bank facing liquidity problems. Such assistance is only given after a full analysis of the problems afflicting such a bank and the reasons they arose. The assistance will only be given on specific conditions, and its purpose is to prevent the bankruptcy of the bank receiving assistance, and/or avoid the danger of problems spreading to other banks through a ³run on the bank´.' A bankrupt bank will often not be able to repay its depositors, and the main purpose of special assistance is therefore to protect depositors. However, such assistance is never guaranteed or given automatically, and banks may accordingly go bankrupt, leading to severe hardships for depositors who lose theirdeposits at such a bank. The maintenance of stability in the banking system is, therefore, of the utmost importance to any country.
Banknotes and Coin
The Reserve Bank has the sole right to make, issue and destroy banknotes and coin in South Africa. The SA Mint Company, a subsidiary of the Bank, mints all the coins on behalf of the Reserve Bank. The SA Bank Note Company, another subsidiary of the Bank, prints all banknotes on behalf of the Bank.
The Reserve Bank is responsible for the wholesale distribution of banknotes and coin, whereas banks distribute banknotes and coin to their branch offices to ensure availability to the public. In order to perform this function, the Reserve Bank has seven branch offices (Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria North). These branches are responsible for ensuring the availability and an adequate supply of good quality notes to meet the public¶s demand, and to replace soiled notes. The branches also settle claims for mutilated banknotes. The branches of the Bank, the South African Police Service and the commercial banks also work together to combat the counterfeiting of banknotes.
Banker of other Banks
The Reserve Bank acts as custodian of the cash reserves that banks are legally required to hold as well as those they prefer to hold voluntarily with the Bank. The Bank has the authority to change the minimum cash reserves that banks are required to hold and can use such adjustments to influence bank liquidity and the amount of money in circulation.
Settlement of interbank claims
The Reserve Bank provides for final real-time electronic settlement of interbank obligations, emanating from non-cash payments (e.g. cheques) made in the economy, via the South African Multiple Option Settlement (SAMOS) system. In addition, the Bank oversees the safety and soundness of the payment system through the introduction of settlement risk reduction measures as and when required. The settlement risk reduction measures are aimed at minimising possible systemic risk emanating from, inter alia, the settlement default (inability or lack of funds to settle obligations) of one or more settlement banks.
Bank Supervision
The Reserve Bank is responsible for bank regulation and supervision in South Africa. The purpose is to achieve a sound, efficient banking system in the interest of the depositors of banks and the economy as a whole. This function is performed by issuing banking licences to banking institutions, and monitoring their activities in terms of either the Banks Act (No. 94 of 1990), or the Mutual Banks Act (No. 124 of 1993) and the regulations relating thereto.
Risk Management
Owing to the unique role and functions of the Bank, risk management is not simply based on institutional risk and return considerations, but also takes into account national interest, in line with the statutory and constitutional responsibility of the Bank. The Bank also functions within an environment characterised by continuous change and uncertainty. This requires constant monitoring and analysis of, and appropriate response to, potential and actual risks emanating from the global political and economic environment. In common with most central banks, the Bank is a risk averse institution. This reflects the view that satisfactory fulfilment of its role and responsibilities could be seriously jeopardised if there were to be significant disruptions to its operations and/or damage to its reputation. The executive management of the Bank is intensely aware of the high performance standards that all role-players outside the Bank expect of the central bank. The Bank views risk management as an integral part and an essential element of good corporate governance.
Policy
The Bank has established a risk management policy to ensure that risks are managed in a co-ordinated, comprehensive and systematic manner that is consistent with internationally accepted standards and guidelines. This policy regulates all risk management initiatives and activities, and facilitates their alignment with the Bank¶s strategic and operational objectives to ensure that the risks threatening the achievement of these objectives are adequately and effectively managed at acceptable levels. The policy governs the full spectrum of strategic, financial (including credit, market and liquidity), reputational and operational risk management in the Bank. Furthermore, it specifies the risk management governance structures, general risk management principles, the Bank¶s risk appetite and tolerance, impact and likelihood requirements, risk management framework and processes, and the roles and responsibilities of all stakeholders.
Governance Structure
The Bank¶s Board is responsible for the oversight of the entire process of risk management. The Board Risk Committee, which is a subcommittee of the Board, assists the Board to ensure a dedicated focus on risk management in the Bank. The Governors¶ Executive Committee (GEC) has overall executive responsibility for risk management in the Bank and is accountable to the Board for ensuring adequate risk management structures and processes. The Risk Management Committee, which is a subcommittee of the GEC, assists the GEC with regard to its executive responsibility for risk management in the Bank.
Framework
All risk management processes and activities are conducted in terms of the Bank¶s risk management framework. The SARB Risk Management Framework details the Bank's governance
processes, risk management universe and the support structures and processes.
Risk Management and Compliance Department
A centralised risk management co-ordination function in the Bank is performed by the Risk Management and Compliance Department (RMCD). The role of the RMCD is to
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Facilitate risk management ownership by management; Provide a standardised strategic and operational risk management methodology and process; Validate that the risk management processes are adequate and effective and comply with internationally accepted risk management standards; and Ensure standardised and integrated reporting on all risk management activities and exposures to the Governors' Executive Committee via the Risk Management Committee, as well as to the Board Risk Committee.
The RMCD is also responsible for the co-ordination and facilitation of specialised operational risk management processes, including business continuity management, occupational health and safety management as well as compliance risk management. Reporting on these risk management activities to the aforementioned committees is also co-ordinated by the RMCD.
Processes
Four distinct risk management processes are used by the Bank for the management of strategic, financial, reputational and operational risk: The strategic risk management process is integrated into the strategic planning process of the Bank, during which process risks at a strategic level are identified and assessed. Financial risk is managed by the Financial Markets Department. Specialised financial risk management systems and procedures, based on best practice standards, are in place to manage financial risks pertaining to domestic and foreign-exchange market operations. Reputational risk is managed by the executive management and heads of department of the Bank, while the Head of Strategy and Communications has a specific responsibility in this regard from a communication perspective. Operational risk emanating from all the operational activities of the Bank is managed by the heads of department and their management teams. Specialised types of operational risk or operational risks with a Bank-wide impact are managed by specific structures or committees established for that purpose. These types of operational risk include
business continuity risk, information security risk, and occupational health, safety and environmental risk.
Reserve Bank shares
Since its establishment, the Reserve Bank has always been privately owned. Today the Bank has more than 660 shareholders and its shares are traded on an Over- the-Counter Share Transfer Facility market (OTCSTF market) co-ordinate within the Reserve Bank. Except for the provision of the SA Reserve Bank Act that no shareholder shall hold, or hold in aggregate with his, her or its associates, more than 10 000 shares of the total number of 2 000 000 issued shares, there is no limitation on shareholding. After allowing for certain provisions, payment of company tax on profits, transfers to reserves and dividend payments of not more than 10 cents per share to shareholders, the surplus of the Bank's earnings is paid to the Government. The Bank's operations are therefore not driven by a profit motive, but by serving the best interests of all the people in South Africa. The Bank was delisted from the JSE Securities Exchange South Africa on 2 May 2002 and a live trading facility for its shares introduced on 1 October 2005. The live trading facility operates in terms of the OTCSTF rules. As such, it is not an on screen trading facility, but rather operates by means of postal, facsimile, hand delivery or e-mail communication only.
Share price and availability
Shareholders of the Reserve Bank and prospective shareholders are advised that the speculations in the media during 2010, regarding the licensing of over-the-counter (³OTC´) market makers, has no reference to the OTCSTF system by means of which the SARB trades its shares. The Bank will, as in the past, continue to trade its shares by means of the OTCSTF.
Shareholders Index Report
The Shareholders Index Report constitutes a shortened version of the electronic register of shareholders which is maintained at the Head Office of the Bank in accordance with the Regulations relating to the South African Reserve Bank. The contents of the Shareholders Index Report are intended for general information only and users are reminded of the disclaimer that applies to the contents of this website.
A printed copy of the register of shareholders is available for inspection by directors, shareholders and members of the public during office hours, on prior arrangement and subject to any restrictions as may be determined from time to time.
Structure
The Reserve Bank is an organisation that has come into being through statute. The Bank cannot amend or change its founding structure; this can only be effected by Parliament. The South Reserve Bank Act, 1989 (Act 90 of 1989), granted management powers of the Bank to the Board of the Bank. The Reserve Bank Amendment Act, 2010 (Act No.4 of 2010) states that the Bank's Board is responsible only for the governance of the Bank. All powers and authorities not vested in the Board vest in the Governor and Deputy Governors, i.e. it is the Governor and Deputy Governors of the Bank who are responsible for the management of the Bank.
Departments
The South African Reserve Bank has fifteen departments, including the Reserve Bank college. Each Head of Department reports to either the Governor or a Deputy Governor. Collectively, the departments ensure the smooth running of the Bank and the implementation of the Bank's mandate.
Corporate Citizenship
The Bank aims to conduct its business practices in a transparent way based on ethical values, compliance with legal requirements, and respect for people, communities and the environment. Ultimately, it adds value in a unique way to society as a whole. Its corporate social responsibility activities therefore consider the entire 'footprint' that the Bank leaves in society and cover, among other issues:
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Health and safety considerations; Environmental conversation, including management of hazardous products and waste; Energy and water consumption; Educational outreach; and International and regional co-operation and training.
Board of Directors
The SA Reserve Bank Act, 1989, as amended, provides for a board of directors consisting of 15 directors. Among them are the Governor and three Deputy Governors, who are appointed by the President of the Republic of South Africa, after consultation with the Minister of Finance and the Board, initially for five-year terms. On reappointment the terms may be less than five years. Four other directors are appointed by the President, after consultation with the Minister, for three-year terms. The remaining seven directors, of whom one needs to have knowledge and skill in the field of agriculture, one in the field of labour, one in the field of mining, two in the field of industry and two in the field of commerce or finance, are elected by shareholders at an ordinary general meeting (OGM) of shareholders. These directors hold office for a period commencing on the first day after the date of their election at the OGM until the first day after the date of the OGM held during the third calendar year following the date of the OGM at which they were elected. The Governor and Deputy Governors manage the daily affairs of the Bank, since they have in terms of the Act been tasked with this responsibility. They are the only executive directors on the Board and are on a full time basis ultimately responsible for the day-today management of the South African Reserve Bank. The board of directors meets regularly to ensure that it fulfils its role of ensuring corporate governance of the Bank. The Board ensures compliance with principles of good corporate governance by, amongst other things, adopting rules and determining policies for the sound accounting, administration and functioning of the Bank, as well as by exercising the other tasks reserved for it in terms of the Act. In the process the Board utilises various committees and subcommittees, chaired by non-executive directors.
Ms G Marcus Governor
Responsibilities:
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Company Secretary and Secretariat Legal Services Department and General Counsel Internal Audit Department and Chief Internal Auditor Strategy and Communications Department, including Outreach and Economic Round Table Currency and Protection Services Department Executive Management Chair: Monetary Policy Committee Chair: Financial Stability Committee Chair: Risk and Compliance Committee Chair: Financial Stability Oversight Committee Chair: Governors' Executive Committee Chair: Board of the SARB
Member:
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Board Board sub-committees Governors¶ Executive Committee (GEC) Monetary Policy Committee (MPC) Financial Stability Committee (FSC)
Subsidiaries
To ensure the proper functioning of the Bank and the optimal discharge of its responsibilities, some of the Bank's activities have been organised in subsidiary companies. The Bank is currently the sole owner of its subsidiaries.
Corporation for Public Deposits
The Bank's first subsidiary was the National Finance Corporation (NFC), which commenced operations on 20 September 1949. The NFC was established with the aim of deepening the domestic money market, thereby ensuring the utilisation of capital in the best economic interests of South Africa. The NFC accepted as liabilities deposits from Government and quasi-government institutions, and invested mainly in Treasury bills and other government securities. The liquidity of the NFC was guaranteed in terms of an agreement that the Bank would discount its holdings of Treasury bills, as and when required, at the rates at which the NFC acquired the bills.
South African Banknote Company
When the decision was made in 1958 to print South African banknotes domestically rather than abroad as was the practice at the time, the Bank and a British banknote printer, Bradbury Wilkinson, established as a joint venture company, the South African Bank Note Company (Pty) Ltd, with the sole objective of printing banknotes for South Africa. Suitable factory premises for printing banknotes were erected and the domestic production of banknotes commenced in 1961 at the time when South Africa adopted a decimal currency. The shareholding of Bradbury Wilkinson in the joint venture company was subsequently taken over by the Reserve Bank and the South African Bank Note Company (Pty) Ltd is currently one of the four wholly owned subsidiary companies of the Bank. The South African Bank Note Company prints all the banknote denominations currently in use in South Africa it also prints banknotes for neighbouring countries. It has a separate management structure and functions as an independent subsidiary and members of its board are appointed by the board of the Bank.
South African Mint
The history of minting coins in South Africa goes back to the period when South Africa comprised four separate regions that later became provinces of the Union of South Africa. A government mint was established in Pretoria in 1890 and commenced with the domestic production of coin in 1892. After unification of South Africa in 1910 the country used British coin, as well as coin of the Zuid-Afrikaansche Republic. The latter remained legal tender until 1938, while British coin remained legal tender until 1961. Coining operations in Pretoria evolved into the South African Mint, which was established in 1923, and functioned as a division of the central government. When the Government sold the South African Mint to the Bank in 1988, it was decided to house the coining activities in a wholly owned subsidiary company, the South African Mint Company (Pty) Ltd. The South African Mint is responsible for the manufacturing of all circulation coins issued in South Africa and also produces coin for other countries. This company also produces the Krugerrand and the Natura and Protea coins. Numismatic coins are sold by the SA Mint, while the Rand Refinery has, since the inception of the Krugerrand, played a major role in its issuing. The SA Mint is an independent subsidiary with its own board (appointed by the board of the Bank) and management structure.
SARBCIC
The newest of the Bank¶s subsidiaries is the SARBCIC Ltd, a captive insurer licensed to carry out short-term insurance business in terms of the Short-term Insurance Act, 1998 (Act No. 53 of 1998) for, and on behalf of, the Bank and its subsidiary companies. SARBCIC's primary purpose is to provide an efficient risk transfer mechanism, thereby reducing dependency on external insurers and optimising expenditure on insurance over the long term. In terms of conditions for its registration, SARBCIC may only issue insurance policies to cover risks of the SARB and its subsidiary companies, including risks related to its pension and/or provident funds (firstparty risks). SARBCIC is managed and controlled by a board of directors that is appointed by the Bank. One of SARBCIC¶s directors, who is a full-time permanent staff member of the Bank, is appointed to serve as its Chief Executive Officer. The Bank is responsible for the management of the company, which includes responsibility for the investments and administration of its daily business operations.
The South African Reserve Bank College
The SARB College is an internationally recognized institution of excellence that facilitates the development of central banking competencies. The College welcomes individuals who are currently employed and nominated by their respective companies to attend the courses on offer. The South African Reserve Bank is also a registered training provider with the Banking Sector Education Authority (BANKSETA).clients include:
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South African Reserve Bank Financial sector in South Africa Central banks in the SADC region and other central banks Government and parastatals
Tertiary education institutions.
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