daniel mminele : global economic and financial market developments – implications for south africa address by mr daniel mminele, deputy governor of the south african reserve bank, at the bank ’ s financial markets department ’ s annual cocktail function, pretoria, 7 april 2011. * 1. * * introduction good evening, ladies and gentlemen, and a sincere welcome to you all to the fifth annual cocktail function of the financial markets department. as you are aware, the financial markets department hosts this function both to convey its appreciation for the co - operation it receives from counterparties in its market operations and to give an update on its operations to market participants. tonight ’ s function also provides an opportunity for us to bid farewell to our long - time colleague and friend, dr roelf du plooy, who officially retires from the service of the bank at the end of this month. i know that many of you have already met and interacted with ms zanele mavuso mbatha in her new capacity, but i should also like to use this opportunity to introduce her formally to market participants as the new head of the financial markets department. she took up the role in january 2011, and has been working with roelf du plooy to facilitate a smooth transition and succession. before i give you an update on the market operations of the financial markets department, allow me briefly to touch on the global economic and financial markets backdrop and its implications for south africa and our operations. 2. global economic and financial market developments global economic developments continue to be characterised by high levels of uncertainty. while the global economic recovery appears to be on track, it remains uneven with the advanced economies growing slower than emerging - market economies. sovereign debt challenges and high levels of unemployment still present risks to growth in advanced economies, and many emerging - market economies have to grapple with risks of overheating economies and rising inflationary pressures. more recently, downside risks to growth have increased on the back of recent developments in the middle east and north africa ( mena ), which have led to a further increase in the oil price, to more than double the levels that prevailed about a year ago. food prices have increased substantially in many countries and have added to the pressures being observed. it is generally anticipated that the effects of the earthquake in japan on the global economy will be of a short - term nature, but until the full extent of the damage and implications of the nuclear disaster are known, risks and uncertainty remain. global financial

b ) currency issue the reserve bank act gives the bank the sole right to issue banknotes and coins in south africa. the provision of currency by the reserve bank under a statutory monopoly is seen as a useful public service which provides a basis on which other payment arrangements and contracts must rest. the bank ’ s role is to facilitate and encourage overall payment system efficiency by continuing to offer currency as just one payment technology amongst several. alternative payment technologies and innovations are freely allowed within this framework, and users are allowed to choose freely amongst the competing technologies. at this stage, there is no intention that the reserve bank should itself issue stored value cards, or provide other forms of electronic money to the public. however, the possibility that this might happen at some point in the future cannot be completely ruled out. if electronic developments proceed to the point where payment using currency becomes inefficient and costly, then it could prove to be necessary to convert our paper and metal currency issue into electronic form. electronic payment developments ( and any erosion of the currency issue that may result ) do not appear to pose any threat to the reserve bank ’ s ability to implement monetary policy in the foreseeable future. even if they did pose such a threat, the appropriate response would probably not be to seek to control or prevent such developments. it would generally be much better to adapt the monetary policy operational procedures to the realities of the market place. ( c ) prudential issues the issue of e - money could be a risky business, because the monetary amount stored on a card or on a network is only as good as the bank or other organisation which has the ultimate ability to pay on that obligation. this may not be a serious concern in the case of low - value balances. however, it becomes much more serious with higher - value balances. such problems do, of course, not arise in the issuing of banknotes and coins. these currency liabilities form part of the reserve bank ’ s overall liabilities and a guarantee is provided to the bearer that they will be replaced with currency of an equal value. the issue of e - money will also increase the risk of counterfeiting. depending on the technical characteristics of each system, counterfeiting could take place by physical reproduction of cards, by manufacture of a “ re - loading mechanism ” which could be fraudulently used to add new balances to authentic cards, or by “ hacking ” into the payments systems themselves. with some technologies, it might be difficult