, it does not disappear. we had probably underestimated the inter - linkages of financial systems across the globe, and the extent to which globalisation had created a complicated network of circuits for the contagion of financial risk. the lesson to take forward is that we should never lose sight of the systemic implications of individual institutions, transactions and events. financial stability is a systemic concept, and it will play a much bigger role in future and should be taken much more seriously than was the case during the exuberant years prior to 2008. issues such as macro - prudential analysis and supervision, crisis preparedness and stress testing of the financial system are likely to feature much more strongly in our collective endeavours for years to come. lesson number 2 : if something seems too good to last, it probably is the current crisis resulted from a specific combination of a number of causes. for years, liquidity in global financial markets was mispriced, and therefore generally taken for granted. interest rates were low, and huge profits were locked in through carry trades where funding could be obtained at a minimal cost in overnight markets, and invested in high - yielding longer - term assets, be it emerging - market financial assets, equities, securitised mortgage loans or asset - backed securities. south africa was a beneficiary of this trend : between 2004 and 2007, net inflows recorded in the financial account of the balance of payments totalled r391 billion. if the inflows that are included under “ unrecorded transactions ” are added, this figure would be well over r500 billion. compare this to a combined net outflow of around r23 billion over the prior four years. the advantages of these inflows were significant : they allowed the south african reserve bank to restore a fragile foreign exchange reserves position to a more healthy one, they helped the country to finance its current account deficit, to build infrastructure, to boost economic growth and to increase employment. overall, they made the country slightly more resilient against the adverse developments that we are currently experiencing. however, we have been abruptly reminded that portfolio flows are fickle, and cannot be relied upon as a source of external funding when the tide turns. even though south africa still maintained a positive net balance on its financial account for the first three quarters of 2008, there were significant net outflows of portfolio investments as global investors were forced to deleverage. in addition, funding in

continue to simmer, especially between iran, the us and its middle east allies. while the g20 observed that global growth appears to be stabilising more recently and may pick up into 2020, downside risks overall are still perceived to be tilted to the downside. what does this backdrop imply for emerging markets? against such a global backdrop, emerging countries are facing conflicting pressures. and the experience of the past 15 months shows that it is not just the monetary policy page 3 of 10 path in the major economies, but also the divergences ( or not ) between these policies, that can have major consequences for emerging markets. at first, and for a large part of 2018, an ever - widening growth gap between the us economy and its major partners, coupled with budding trade tensions, boosted the us dollar. the fed continued to normalise policy rate levels while other major central banks stayed put. the resulting widening in the interest rate divergence in favour of the us contributed to dollar appreciation. the mix of rising us interest rates, a stronger dollar and overweight investor positions ( at the time ) in the so - called ‘ risky assets ’ weighed on the currencies and bonds of those emerging markets that exhibited frail external and fiscal balances. specifically, financial stress in argentina and turkey, amid the need to roll over a large amount of short - term debts and a de - anchoring of inflation expectations, precipitated a sell - off in emerging market assets, although with important differentiation across countries. the situation changed in the fourth quarter of 2018, when indications of slowing economic activity in the us led financial markets to anticipate lesser tightening by the fed, resulting in some downward pressure on the dollar and a decline in us treasury yields. the prevailing mix allowed for some recovery in emerging market assets and a resumption of capital flows to these countries. additional factors also helped, including the decline in oil prices, the tightening of monetary policy in a large number of emerging countries that had restored wider rate differentials with the advanced economies, and, in several countries, a lesser - than - feared pickup in inflation in response to currency depreciation. during the early stages of this year, we have seen a significant change in monetary policy forward guidance given by major central banks, the fed and ecb in particular, which delivered some easing of financial conditions, particularly in advanced economies, but in emerging markets as well, although to a lesser degree. page 4 of 10 yet the