Mr Stals discusses the importance of the Y2K problem and the responsibility of central
banks
Opening remarks by the Governor of the South African Reserve Bank, Dr Chris Stals, at the
Regional Year 2000 Meeting of Financial Regulators from Africa organised by the Joint Year
2000 Council and the South African Reserve Bank in Pretoria on 21/1/99.
1. Introduction
Fairly early in the second millennium, some time in the course of the eleventh century, the
renowned Persian philosopher and poet Omar Khayyám, also known as the tentmaker of
Naishapur, wrote the following verse:
"The Bird of Time has but a little way
To fly -- and Lo! the Bird is on the Wing"
(from The Rubáiyát)
Now, nine hundred years later and in the closing months of the same millennium, these words of
wisdom become very appropriate once again, referring of course at this juncture to the Y2K
problem of our modern electronic age. We can with all justification quote Khayyám and say:
"The Bird of Time has but a little way
To fly -- and Lo! the Bird is on the Wing"
I believe that this Conference will serve to bring this message more clearly to all parties
concerned, and particularly to the financial regulators and supervisors of the Southern Africa
region. Time to prepare our financial institutions and systems for this major event of the
switchover to the new millennium is indeed running out.
It is too late now to blame the designers and suppliers of electronic equipment for not having
incorporated in the tools we use today four-digit date facilities. This will be tantamount to
blaming Henry Ford for not having provided facilities for a CD player in his Model T Ford of
about a hundred years ago.
The distance already covered by our Bird of Time took us beyond what the experts in this Y2K
exercise will describe as the sensitisation, awareness, or risk identification phase. Those of us
who have not gone through these preliminaries may have missed the boat already.
Looking through the programme for this Conference, there is a strong focus on the second and
third phases, referred to as actions of remediation and of testing. I hope that most of our
participants in this Conference find themselves, together with the Reserve Bank, already well
advanced into these secondary stages of preparation for the switch-over date.
Tomorrow's meetings will proceed into a discussion of the final phases of risk assessment and
contingency planning. I believe in this game the best advice for contingency planning is to
provide for worst case scenarios, and eventually to enjoy the pleasure of having been wrong and
unnecessarily pessimistic.
I must congratulate the organisers of this Conference for putting together a very well-structured
and detailed programme. All the aspects and phases of this challenging exercise will be covered
in the discussions of today and tomorrow at this Conference.
2. The importance of the Y2K problem for the global financial market
It is not necessary to elaborate on the importance of electronic data processing and
communication systems for financial institutions and markets. It is, therefore, understandable
why there is great concern that financial systems will be severely disrupted when the year 2000
arrives and computer systems have not been corrected to be able to process dates into the next
century. Taking account of the extensive globalisation of financial markets, the exploding
volume of worldwide cross-border transactions and the integrated inter-relationships of financial
institutions and markets throughout the world, disruptions, if they do occur on any large scale,
will not remain localised.
Just as the East Asian financial crisis of last year had a contagion effect and spread throughout
the rest of the world in a matter of months, a breakdown in computer systems as a result of a
Y2K-bug infection in any important financial centre will spread to other places. The only
difference will be that in case of a Y2K problem, the transmission mechanism is open,
uncontrollable and instantaneous. The potential for severe disruption of the global financial
system is enormous and could have dire consequences.
Because of possible "knock-on" effects or "chain" reactions, it is imperative that all countries in
the world take the necessary actions to remove the Year 2000 threat. These actions can best be
initiated and monitored by governments and financial regulators.
There will be a temptation for countries that do comply timeously with the problem to restrict
trade with, and reduce investment in, countries that are not seen to be making sufficient efforts to
become compliant or are unable to satisfactorily prove compliance. In the present volatile world
financial markets, the smaller economies with emerging financial markets, such as South Africa,
cannot afford to add this additional burden to the perceived high risk exposures already linked to
doing business with them.
3. The importance of the Y2K problem for financial regulators
The main purpose of this Conference is to assist financial regulators of the Southern Africa
region to bring themselves and their constituencies, that is the financial institutions in the region,
on board in this exercise of preparation for the Year 2000 electronic switch-over. The financial
systems of the world are today in most countries entirely based on electronic data processing
technology, and any major hitch in these systems will obviously have serious implications for
financial markets, and therefore for total economic activity.
I referred to possible knock-on or chain effects in the global financial system, and the danger of
global contagion from one or more infected centre. This danger of contagion is of course, equally
important in the case of any domestic financial system. Because of the inter-dependence of
financial institutions in any closed system, care must be taken that all the financial institutions in
each country will be compliant by the end of this year. The programme that must be followed in
this process of preparation provides no room for competition amongst individual institutions, but
surely requires a high degree of co-operation. This provides a further reason why financial
regulators have a major part to play. Problems must be overcome, not only by institutions within
the financial system, but also by all the major clients of the financial institutions, such as
government departments, public authorities, and major non-financial private sector corporations.
4. The responsibility of central banks in the Y2K problem
Central banks hold a pivotal position in domestic and international financial markets. They must
obviously take a leading role in preparing their financial systems for this major event.
The South African Reserve Bank started at a very early stage in identifying all problem areas in
its own information technology and communication systems. In terms of our programme, all
electronic technology in use in the Bank must be in full compliance by 31 March 1999. Some
parts of the internal system have already been tested. The crucially important Samos system for
clearing and settlement transactions is to be tested and must be certified as fully compliant by all
participants by mid-April 1999.
The Bank has also established a Financial System Risk Evaluation Committee which is tasked
with identifying indirect exposures to the central bank and the financial system, and with
developing contingency measures. The Committee is, for example, providing for additional
stocks of bank notes to be available at all centres for an expected increase in demand around the
dates of the switch-over, and is looking at a possible need from banking institutions for
additional financial liquidity over this short transition period.
The South African Government last year also established the National Year 2000 Decision
Support Centre to co-ordinate and provide advice on a national scale for the programme of
preparing for the switch-over to the new millennium.
Finally, the Year 2000 problem has been on the agenda of discussions of the Committee of
Governors of the countries of the Southern Africa Development Community (SADC) for the past
eighteen months. All member countries will be requested to report back on the progress made in
their country systems at the next meeting of this Committee in April.
5. Concluding remarks
I must thank the organisers of this Conference, and particularly the Joint Year 2000 Council, for
arranging this seminar. It is timely, it is very much needed in our region, and it will hopefully
contribute further to the awakening of a full awareness of the urgency of the problem. I am
impressed by the list of participants, and the high quality of speakers who have made themselves
available to share with us their experiences, and provide further guidance and assistance in our
efforts to make sure that South Africa and the countries of the Southern Africa region will be
compliant before the end of this year with the Y2K problem. Representatives from a number of
the multinational financial institutions of the world, and a number of central banks and regulatory
authorities from other countries and from South African institutions, will introduce, lead and
guide the discussions at this Conference today and tomorrow. We thank all our speakers and
facilitators for the sacrifices you are making to ensure a successful, stimulating and productive
discussion at this seminar.
I welcome and thank all other participants in this Conference for accepting the invitation to be
here today. We particularly welcome a number of participants from other African countries.
Looking at the programme, I have no doubt that you will be amply rewarded.
In conclusion, I would like to thank my colleagues in the Reserve Bank, and also those staff
members of the Bank for International Settlements in Basle, who were responsible for making all
the arrangements for this Conference.
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