work underway in trying to understand exactly what all this means. so while central banks may have perfected the art of monetary policy in the last decade, they have also undergone a tectonic shift in the last few years, which still has some way to go. 3. emerging markets and capital flows one of the consequences of the easy monetary policy employed over the past few years has been the surge in capital flows to emerging market economies. the institute of international finance ( iif ) records that net private capital inflows to emerging markets increased from just below us $ 200 billion in 2002 ( 1, 5 per cent of gdp ) to us $ 908 billion in 2010 ( 7 per cent of gdp ). the iif estimates that inflows will rise to us $ 960 billion in 2011 and to over us $ 1 trillion in 2012. these inflows reflect a combination of greater macroeconomic fundamentals in emerging markets, significant fiscal deterioration and loose monetary policy in advanced economies, and the increased integration of emerging economies into international capital markets. many emerging market economies have taken various actions towards curbing capital inflows in an attempt to limit currency appreciation. measures considered and implemented range from taxes on inflows, limits being placed on government bond investment by foreigners, to pre - announced currency market intervention programmes, just to name a few. south africa too has experienced large capital inflows, with the resultant upward pressure on the exchange rate of the rand. a favourable fiscal position, deep and liquid capital markets and sound macroeconomic policy have made the country an attractive destination for portfolio inflows. south africa has studied the measures imposed by other emerging market economies, but questions the efficacy of most of these measures. furthermore, it is doubtful that such measures would be appropriate for south africa given our savings / investment the role of central banks after the crisis, mr jaime caruana, general manager of the bis, january 2011. bis central bankers ’ speeches imbalance and dependence on portfolio flows to finance our current - account deficit. like the philippines, where measures to encourage greater capital outflows were implemented, so too has south africa lifted some of the limits on outward investments for local pension funds, insurers and individuals. south africa has also taken advantage of strong capital inflows to increase the level of foreign - exchange reserves. gross reserves have increased by approximately us $ 9, 6 billion since january 2010 to us $ 49, 3 billion in march 2011. of this amount, an

to invest funds abroad when a local investment will serve our needs better and more effectively. 4. monetary policy in an environment of no exchange controls the new situation brings new challenges also for monetary policy. the depreciation of the rand last year, and the appreciation of almost 10 per cent since november 1996, gave us a taste of the new exposures of our financial system to the global markets. if south africa wants to be part of the global village, we shall have to abide by the rules of the international markets. without exchange controls, capital in and outflows will be dictated by market forces, and markets are inclined to put heavy penalties on errors made by governments and central banks in their macroeconomic policy decisions. it will be fatal for a country to liberalise its financial systems and to encourage the integration of its domestic financial markets into the global system, and then to balk at the disciplines of these markets. 5. financial institutions without exchange controls many south african financial institutions have already taken up the challenge of becoming part of the international financial community. such institutions will also have to consider carefully how this new venture will affect their own security, liquidity and solvability. there are numerous examples in the world of the collapse and failure of major financial institutions because of international exposure. governments or financial regulators and supervisors cannot protect multinational institutions against the many risks involved in being global. south african institutions were protected from these international risk exposures through the isolation of our country from the international markets. now that the opportunities are being opened up for an outward movement, they have to tread with care and with caution. 6. conclusion the removal of exchange controls opens up new opportunities for south african corporates, institutional investors and private individuals. all of them, however, must not be overwhelmed by emotional considerations inspired by a new freedom, but must give careful consideration before any decision is taken to invest hard earned savings in a foreign country, in a foreign currency and in a foreign institution.