##ising controls by type of flow was generally broadbased for both inward and outward flows. the country does not have restrictions on inward capital flows and these inflows have thus far been effective in adequately financing the deficit on the current account of the balance of payments. the country ’ s reliance on portfolio inflows makes it difficult to impose measures that may dry up this source of funding. regarding outward capital flows, a phased as opposed to a ‘ big bang ’ approach was adopted to ensure that financial stability was maintained. the sequencing started with current account transactions, followed by removing controls on non - residents capital flow, direct foreign investments by south african corporates, and finally allowing for the diversification of the portfolios of institutional investors. this approach was followed also because of the large amount of domestic savings after years of tightening. although prudential limits to regulate the foreign exposure of domestic institutional investors still exist, 1 group of twenty they have a built - in stabilising effect, such that as the rand depreciates, the institutions closer to their limit will breach the threshold and will over time be required to repatriate the funds. as the only source of knowledge is experience, allow me at this point to share our use of the policy toolkit for managing capital flows. the policy response to capital flows is embedded in maintaining macroeconomic policy discipline and strengthening the depth and regulation of financial markets. the flexible exchange rate continues to act as a shock absorber, where the currency is allowed to strengthen if it is not deemed overvalued relative to the fundamentals or to weaken if it is not deemed undervalued. in a nutshell, south africa has a relatively hands - off approach to managing capital inflows while monetary policy is not focused on the exchange rate but rather on the possible inflationary implications of exchange rate changes. however, during periods of sustained inflows, the authorities accumulated foreign exchange reserves, without in any way seeking to influence the exchange rate towards a particular level or range. during periods of large capital outflows, such as in the final quarter of 2008, the south african reserve authorities deemed it inappropriate to impose capital control measures on outflows, for the following reasons : according to the 2016 results of the triennial survey conducted by the bank for international settlements, about two thirds of rand trading occurs in offshore markets. any domestic capital flow restrictions will therefore have little to no impact on this trading but could rather lead to an increase in

. in 2016, the south african reserve bank published, as part of its financial stability mandate, a proposed macroprudential policy framework for the south african financial system and its regulated entities. although this macroprudential framework is currently silent on capital flow measures that have a macroprudential intent, the inclusion of capital flow measures in south africa ’ s macroprudential framework is an integral part of the south african reserve bank ’ s current research agenda. while acknowledging the role of foreign savings in financing domestic demand, it is of utmost importance to develop a toolkit of macroprudential measures required to deal with credit and asset price cycles driven by global capital flows. i must, however, stress that the prudent way of dealing with volatile capital flows is to maintain disciplined macroeconomic and countercyclical policies during periods of inflows to ensure that the economy is resilient should outflows occur. in a broader context, it is important for source countries of capital flows to be cognisant of the role and effect of their measures on the policies of recipient countries. improved global policy coordination will help to mitigate the unintended spillovers from country - specific policies and will add stability to and improve efficiency in the global financial system. in summary, south africa has made remarkable strides in liberalising capital controls since 1994, especially on non - resident investors. exchange control restrictions on foreign investment by private individual residents in south africa have been progressively relaxed since 1997, such that the current limits are no longer a constraint. it is estimated that by now less than 3 % of individuals are ‘ somewhat constrained ’ by the remaining exchange controls. limits on outward foreign direct investments for corporates have also been abolished. and as a step towards prudential regulations, institutional investors are permitted to invest abroad, subject to a foreign exposure asset limit ( currently 25 % or 35 % depending on the type of institutional investor ). with every experience there is a lesson to be learnt ; the progressive liberalisation of the exchange controls came at the cost of losing key information on cross - border flows that is crucial for macroeconomic policy decisions. it was at this point that the authorities strengthened the cross - border system for monitoring and reporting. as the process of applying for approval of foreign exchange was largely eliminated, authorities were also required to strengthen regulatory, supervisory, inspection and monitoring roles to prevent the illegal export of capital. the illicit flow of capital is currently a big challenge for most countries that have liberal