mr. stals looks at the role of central banks in today ’ s economies and discusses the experience of south africa address by the governor of the south african reserve bank, dr. chris stals, given at a conference on current economic policy issues arranged by the economics department of the university of durban - westville and the mercury in durban on 25 / 4 / 97. 1. the objective of monetary policy there is fairly general consensus in the world of central banking today that the objective of monetary policy should be to protect the value of the currency. there was a time up to the late ’ seventies when economists and central bankers advocated a much wider role for monetary policy in the management of the macroeconomy. under the influence of the keynesian demand management approach, monetary policy was seen as a useful instrument to be used by the authorities to depress demand in times of an excessive rise in total real expenditure on goods and services, or to stimulate real demand in times of recessionary conditions. monetary policy may have been an effective instrument for the purpose of demand management in the global system of fixed par values, or in the times of keynes ’ general theory of employment, interest and money, ( 1936 ), when a lack of overall demand caused production resources to remain under - utilised. during the 1970 ’ s, however, the bretton woods system of fixed par values was replaced with the global system of floating exchange rates and over - stimulation with expansionary monetary and fiscal policies created inflationary pressures and persistent balance of payments crisis situations. the emphasis in macroeconomic policy gradually shifted from demand - side management to supply - side expansion in which monetary policy was assigned a different role. monetary policy was no longer accepted as a useful short - term anti - cyclical policy instrument, but was tasked with the responsibility of creating on a continuous basis a financial environment that will be conducive to sustainable optimum economic growth in the longer term. this environment can be characterised by stable overall financial conditions in which the rate of inflation will at all times be low. in this new approach, central banks focused their attention on major financial developments such as changes in the money supply and in bank credit extension, the level and the structure of interest rates, changes in the official foreign reserves of the country, and movements in the exchange rate. the ultimate objective of monetary policy became the value of the currency, and whatever strategies were followed with the implementation of monetary policy, the success or failure of the policy was measured by the level

temporary shutdown of government services. but the deceleration in other countries, amid a slowdown in global trade flows, surprised many by its magnitude. the eurozone slowed from 2. 4 % in 2017 to 1. 8 % last year, as weakening exports to asia, the united kingdom ( uk ) and eastern europe took a toll on business confidence. the world bank now only expects a 1. 2 % increase in the eurozone ’ s gross domestic product ( gdp ) this year. china has also lost momentum, as earlier policy tightening curtailed lending by the non - bank financial sector and the tariff increases of 2018 weighed on exports. by late 2018, these negative economic surprises had reached levels ample enough to trigger a bout of risk aversion in financial markets, which particularly affected equities 1 media call on the june 2019 global economic prospects report, world bank group, washington dc, united states page 2 of 10 and corporate bonds ( although emerging market currencies and fixed - income markets were relatively sheltered ). global financial conditions tightened. this tightening, however, proved short - lived, as the continuation of benign ( and, in some cases, soft ) inflation developments allowed major central banks to pause, or delay, the start of their normalisation process. in the us, in particular, indications by the federal reserve ( fed ) that it could be patient before making any policy decisions helped equities and corporate bonds to recover their earlier losses. nonetheless, many threats to global expansion remain unresolved, and in some cases risks previously identified have begun to materialise. first and foremost among these are the trade tensions between some of the world ’ s major economies. in the wake of the recent increases in us tariffs on selected chinese imports, and in light of the potential for broader tariff increases, analysts are already anticipating a bigger drag on global growth from what increasingly looks like a protracted trade conflict. in its most recent surveillance note for the g20 finance ministers and central bank governors, for the meetings in fukuoka, japan, 10 days ago, the imf noted these additional tariffs would “ dampen trade and weigh on confidence and financial sentiment, adversely impacting investment and productivity and growth. ” separately, the uk ’ s parliament is struggling to agree on the terms for leaving the european union, with negative consequences for growth and investment and some spillovers to continental europe. financial markets have displayed sensitivity to these developments. at the same time, a number of geopolitical tensions