transparency in the area of international reserves. keeping the incomplete coverage of the imf data in mind, we can observe that the share of the euro has risen from 18 % in 1999 to around 25 % in 2003. since then, if one adjusts the imf figures – which are published in current exchange rates – for valuation effects, the share of the euro in global foreign exchange reserves has remained relatively stable hovering around 24 - 25 %. interestingly, this relatively stability of currency shares in global foreign exchange reserves persisted during the onset and intensification of the global financial crisis. in the fourth quarter of 2008, the share of the euro rose by around one percentage point – again, after adjusting for valuation effects ( chart 1 ). it is conceivable that these latest developments have been mainly driven by emerging market central banks which have intervened to defend their currencies during the second half of 2008 and have mainly done so by selling us dollar - denominated assets. whether one should attribute this latest moderate increase in the share of the euro to a genuine change of currency preferences is therefore not obvious. ladies and gentleman, please also allow me to reflect a bit more generally about the nature of international reserve currencies. what are the requirements for a currency to achieve such a status? price stability and the depth and liquidity of the respective capital market are important elements, and the euro appears to qualify in this regard. for example, in terms of liquidity, the euro appears to have become in the perception of reserve managers the second most attractive currency in the world ( chart 2 ). but what are the other factors that finally create a major international currency or even a “ currency of exorbitant privilege ” such as the us dollar? recent research has shown that we can also use standard portfolio theory in order to get some useful insight into this question. for example, it appears that over the past 30 years it made sense for a global bond investor – like a central bank – to be long dollar since the dollar has been a good hedge for such a portfolio. 1 one can also use standard portfolio theory in order to explain more specifically the currency choice in central bank portfolios over the past ten years. in fact, ecb research has shown that for many emerging markets with pegged or managed exchange rates it made a lot of sense to hold a sizable fraction of official reserves in their “ anchor currency ” which is often the dollar. 2 the underlying reason is not that these central banks

africa at the end of 2000 exceeded r24 billion. other continents are also attracting the attention of south african companies that are leaders in their respective fields and some of these companies have sought listings on foreign exchanges. companies like the resources giants anglo american and billiton, the financial services companies investec and old mutual, the brewer sabmiller and sappi, the pulp and paper company now have global reach and are making their presence felt beyond their home market. 5. conclusion in short, then, the south african economy is in fairly good shape, with the exception of the inflationary consequences of the 2001 exchange rate depreciation. and the four interest rate increases as well as the notable appreciation of the rand in 2002 will in due course brake the inflation spiral decisively. while my address tonight focused on broad macroeconomic trends, it is worthwhile to stress that the macroeconomy is built up from the microeconomic decisions and actions of millions of participants. real life happens at the microeconomic level. as diplomats you will know that it is your individual encounter with the businessperson or potential tourist that counts - where interest in south africa or in your country is either nurtured, or nipped in the bud. a sparkling, enthusiastic, well - informed diplomat is a catalyst forging friendship and economic ties across borders. indifference or ignorance sabotages these linkages. accordingly, i would like to challenge you to continue deepening your knowledge of our country, its people, its economy, its incentives, rules and regulations, its magnificent places. true expert knowledge takes many years to build up, plus a lifetime of ongoing study to maintain. but it enables one to sparkle, to catch the attention of the key investor or potential tourist, to make things happen. i wish you well in 2003 and beyond in sparkling for your fraternal countries, forging links that are crucial to our mutual economic success and our ability to understand and appreciate one another. once again it is our honour and privilege to host you at this function which has become one of the highlights of the calendar of the south african reserve bank. may the friendships between south africa and your countries continue to go from strength to strength. thank you.