Mr. Stals looks at the role of central banks in the twenty-first century  (Central Bank Articles and Speeches, 23 Mar 98)
Central bank: sarb | Type: speech | Date: 1998-03-23

## Mr.

Stals looks at the role of central banks in the twenty-first cenOpening address by the Governor of the South African Reserve Bank, Dr.

C.

Stals, Twentieth Mint Director's Conference in Sun City on 23/3/98.

## 1.

The history of money reflects the history of the worldThe history of money by far outdates the history of central banking.

The Ri of Sweden and the Bank of England are recognised as the oldest central banks in the wor yet, they were only established during the seventeenth century.

The use of various inst money dates back at least 5,000 years.In antiquity, money took the form of ornaments and household utensils and In Egypt, circa 2000 BC, rings, anklets, necklaces and bracelets were used extens common means of exchange.

As you as Mintmasters know very well, the legendary Kin Croesus of Lydia in Asia Minor is generally credited with the honour of first intr formal and sovereign coinage system, when official silver and gold coins were struc kingdom between the years 560 to 546 BC.

It became common practice to mint sovereign c in the subsequent Persian, Greek and Roman empires.

Perhaps even before this time, o coins were also struck in China.

Thus, coinage, mintage and the issue of money became the history of the world.It is recorded in history that the Greeks managed their financial respons quite well.

They consolidated the coin issues of the various city states into the dra for the Greek currency that is still used today.

The Romans, however, were more profuse the first things they did after they conquered Greece in 146 BC was to debase the dr reducing its silver content from 67 to 65 grammes.

As a matter of fact, the Romans oft out state obligations by devaluation or coin debasement.

In the end, this profligacy co the downfall of the Roman Empire.

## 2.

The history of coinage in South AfricaIn South Africa, likewise, the history of coins was always interwoven wi history of the country.

The Portuguese, with Bartholomew Dias reaching the Cape in 148 Vasco da Gama, who sailed around the Cape in 1497, are credited for discovering the se around Africa to the spices of the East.

Later discoveries, however, of Phoenician an coins on the east coast of Southern Africa, raised the question of who the first real explorers of Southern Africa could have been?With Portuguese, Dutch, British, Spanish, French and even eastern interests sea route around the Cape, many coins of foreign origin came into circulation in Southe The Dutch riksdaalder and the British guinea and pound perhaps played the major role f years in the early history of South Africa.

It was during the time of the second Britis of the Cape after 1806 that a British Governor found it necessary to fix 'exchang between the various currencies that circulated in the Cape at that time.

It is inte currencies were included in this list: Spanish daalders, Venetian sequins, a ducat, (rupee), an English shilling, and the Dutch riksdaalder and half-guilder.During a long period of British rule, British money circulated freely i Africa, which included the farthing, ha'penny, thruppence (tickey), sixpence, shilli half-crown, and crown (5 shillings).

The situation changed again with the establishme independent Republics of the Orange Free State and the Transvaal (ZAR).

The Free reverted to the riksdaalder (= 1 shilling and sixpence).

In the ZAR, riksdaalder note issued to serve as currency, although the riksdaalder was supplemented by periodic i ZAR pound notes in various denominations.In 1874, the ZAR issued its first coins, the Burgers pounds.

As not many o coins were issued, they became very valuable collectors' pieces.

It was only in 1890, that final legislation was passed for the establishment of a State Mint, and for the ZAR coins in pennies, shillings, and pound denominations.

These coins, commonly referre Kruger coins, were first minted in 1892 in a building situated on Church Square in PretAfter the Anglo Boer War, British money was again used predominantly in t new British South Africa (to become the Union of South Africa in 1910).

The history o African coinage took a last major step when a branch of the British Royal Mint was est in Pretoria and started to issue South African minted (sterling) coins in 1923.

This with the Royal Mint came to an end on 1 July 1941, when its Pretoria branch became the African Mint.Today, the South African Mint belongs to the South African Reserve Bank, an minting coins of a world standard.

## 3.

The future: Electronic moneyThe world, including South Africa, is now moving into the future with the g introduction of electronic money.

It is still an interesting question to what extent th of e-money will indeed have an impact on the use of coins and bank notes.There are big differences in the payments systems of different countries, the habits of people using different means of payment.

In South Africa, for example, amount of bank notes and coin in circulation is less than 15 per cent of total d transferable deposits, compared with most of the countries in Eastern Europe (former Socialist Soviet Republics), where it exceeds 100 per cent of the short-term bank de Greece, where it is equal to 104 per cent.

In these latter countries, the introductio will most probably have a much bigger effect on the demand for coins and bank notes South Africa.I believe the subject of electronic money will be discussed in more detail the sessions of this Conference today and tomorrow.

It will also, of course, have implications for central banks, and for monetary policy in the next century.As already said, money, and particularly the use of coins as money, goes further back in history than central banks.

Most central banks in the world today established during the course of the present twentieth century.

But central banks now responsibility to protect the value of money, including, of course, the value of coin notes.

To be able to fulfil this function, central banks must have some power to contr˝of money, and must have some influence on the total amount of money in circulation economy.In countries where notes and coin form a substantial part of the total supply, and where the central bank has the sole right to issue notes and coin, the tas to be easier.

It is, however, also in these countries where it is often easier for g exploit the money-creating powers of the central bank, and where an excessive amount of is often created to finance government expenditure.

Such policies, of course, invariab higher inflation.In the more sophisticated economies, such as we have in South Africa, mone created by banking institutions through their lending and investment operations.

The co the money supply therefore becomes more difficult, and the central bank can only in influence money creation with instruments such as interest rate variations, overall management, open market operations, and money market interventions.With the current liberalisation of financial markets and the tendency integration of financial services in gigantic multi-functional and multi-national conglomerates, the task to protect the value of the currency, that is, to keep infla become more difficult.The debate in the world of central banking about the introduction of e-mo this stage is therefore not only about the effects it might have on the use of, and th bank notes and coin, but also how it will change the role of monetary policy.

Will possible, for example, to maintain control over the creation of money and the tota supply?

How will it affect the spending habits of people?

How will it influence cro trade and the balances of payments between countries?

How will it change the veloc circulation of money, and the savings of the community?

## 4.

Central banking in the 21st centuryWith changes in the concept of money and the use of coins and bank notes, with the introduction of electronic money, satellite communication and financial glob central banks and the modus operandi of monetary policy will also have to change to ada new environment.

It will no longer be sufficient to define money-creating institution and to manage the defined monetary liabilities of these institutions in our efforts t value of the currency.The effective definition of money as a means of payment changed over centuries from objects of value (gold and silver), to fiduciary issues (bank notes an then to deposit-money created by banking institutions.

To this will now be added e-mo payments made through electronically operated global systems (the Internet).

Central ba have to adjust their monetary policies to affect, most probably through indirect mar measures, these new methods of payment and the creation of additional purchasing p Central banks will have to operate more on a universal basis, as the banks and the su conventional and new money instruments will operate globally and beyond the borders o individual nation-state.Central bankers of the world will be forced by circumstances to work closely together, not only in the control over banking and other financial institution˝the implementation of monetary policy.

Developments now taking place in Europe for establishment of a European Central Bank may be followed in other future reg compilations.

Perhaps one day in the next century, the world will have only one centralAs central bankers, we share with you, the Mintmasters of the world, i excitement of the challenges and the prospects of the 21st century.˝