t t mboweni : monetary policy and inflation - the next decade address by mr t t mboweni, governor of the south african reserve bank, at the conference of the bureau for economic research, stellenbosch, 18 november 2004. * 1. * * introduction chairperson, ladies and gentleman, i have been asked to share my views with you today on what will happen with monetary policy in the next ten years. looking into the future is always a hazardous undertaking. it requires a careful analysis of what has changed already and what likely changes will occur in the coming years. such an analysis cannot only concentrate on what has happened in south africa, but must also take into account the structural changes in the rest of the world and how these developments could perhaps affect south africa. this is indeed a formidable task. in the next thirty minutes i will do my best to give you my view on these matters. 2. structural changes in the world ’ s financial sector world war i and the great depression of the 1930 ’ s left the world with highly regulated capital markets and a disintegrated international financial system. the highest priority was therefore attached to restoring multilateral payments and current account convertibility towards the end of world war ii, which led to the bretton woods agreement and the general agreement on tariffs and trade. in the period after the war, the emphasis shifted to the liberalisation of trade and payments. progress with these reforms was relatively slow and at first concentrated on the currency convertibility of current account transactions. in the 1980 ’ s the authorities of the industrialised countries began liberalising financial systems, which were later followed by a number of emerging - market economies. the convertibility of the capital account of the balance of payments gained further momentum with the negotiations in the world trade organisation to liberalise transactions in financial services. this financial liberalisation was accompanied by a process of globalisation, i. e. a growing economic interdependence of countries became discernible through the increasing volume and variety of cross - border transactions and through the rapid and widespread diffusion off technology. new technological advances reduced transportation, telecommunication and computation costs, thus greatly increasing the ease with which national markets may be integrated at the global level. the liberalisation and globalisation resulted in a growing interdependence of national financial markets. although these markets still do not form a single global market, the degree of interdependence is already strong enough to have altered the environment in which monetary policy

. for other bodies, such as the european stability mechanism, the situation is somewhat more complex and blurred. it was created on the basis of intergovernmental arrangements and for tasks where the eu only has a coordination role, and where the european parliament is not yet a counterparty in terms of accountability. so a balance needs to be found. on the one hand, accountability should be assigned to national parliaments for decisions that are fully in the hands of national authorities. on the other hand, it would seem appropriate for the european parliament to be accountable for decisions that affect the interests of the eu as a whole. 3 / 4 bis central bankers'speeches addressing the risk of an “ accountability deficit ” let me conclude. accountability and sovereignty need to be aligned to address risks of a perceived “ accountability deficit ”. the development of the ecb ’ s accountability practices has ensured continued effective scrutiny, even as our role expanded as a result of the crisis. in turn, this has allowed the temptation of renationalisation to be resisted, in keeping with our european mandate. public opinion surveys suggest that euroscepticism is now receding. but we should not be complacent, as trust in the ecb is only gradually returning. moreover, while european policies have assumed a stronger role over time, in many areas they still overlap with national policies. in those areas, confusion over the assignment of responsibilities and accountability arrangements threatens efficiency and legitimacy. we should reflect on how it can be addressed. and there is a need for us to complete not only the banking union, but also the institutional set - up. this includes the ongoing debate on a euro area finance ministry and a euro area composition of the european parliament. this is important for two reasons. first, it would be a true reflection of a functioning democracy where sovereignty has been either fully transferred to eu level ( e. g. monetary policy ) or is shared between national and eu levels ( e. g. prudential policies ). and second, liability and control need to be aligned – he who pays the piper calls the tune. when taxpayers ’ money is involved at european level, a european control function is called for. if, going beyond the westphalian paradigm, eu citizens can receive rights and obligations not only through the national sovereignty channel but also directly through the eu channel, we need to adjust the institutions. this was already recognised at the maastricht treaty conference on political union in 1990. on a final note, let