run in terms of real growth or employment by accepting higher inflation rates. the opposite is more likely to be true. higher inflation will in the long run militate against growth and job creation. the objectives of external balance, growth and employment will over time be served best by creating and maintaining a climate of reasonable domestic price stability ”. ( par 47 ) 2. the changing financial environment the deliberations of the de kock commission took place in an overall sociopolitical and economic environment that was completely different from what we have to contend with in south africa today. with his wisdom and his foresight, gerhard de kock may have envisaged, and surely wished for, an environment in which monetary policy could be applied without the shackles of sanctions, boycotts, exchange controls, high inflation, social unrest and political distortions that characterised the period of his domain. over the past decade, the situation has changed dramatically. the major socio - political reforms of the early 1990 ’ s opened up the way for a normalisation of south africa ’ s position in the world environment. also in the field of economic and financial relations, south africa has been reintegrated in the international community from which it was excluded over the preceding two decades. the international economic punitive actions against south africa were repealed in great haste after the government of national unity took power in april 1994, and south africa took its rightful place again in international forums such as the united nations, the bretton woods institutions ( imf and world bank ), the organisation of african unity, and the british commonwealth of nations. south africa became reintegrated into a world financial system that was vastly different from the one it had left in the late 1970 ’ s and early 1980 ’ s. the explosive developments during its absence in electronics and in communications, and the revolutionary trans - formation from mainly manufacturing / trading economies to a new service / information based culture, led to a strong movement of globalisation in financial market activity. this process forced the liberalisation of domestic and international financial markets in many countries, led to the abolition of exchange controls and exposed countries more directly to the disciplines of international markets. today in south africa, there are more than 60 foreign banks that compete through representative offices, branches and subsidiaries with the domestic banks to provide financial services to the south african community. we are in the process of gradually removing our exchange controls to join the other approximately 60 ( out of 185 ) countries of the world, that have already succeeded

mr. stals looks at the effects of the changing financial environment on monetary policy in south africa address by the governor of the south african reserve bank, dr. c. stals, at the annual dinner of the pretoria branch of the economic society of south africa held in pretoria on 15 / 5 / 97. 1. the objectives of monetary policy the gerhard de kock commission of inquiry into the monetary system and monetary policy in south africa laid the foundation for the monetary policy model applied in south africa over the past decade. although the de kock commission ’ s final report on monetary policy was submitted in may 1985, it was only since 1986, when money supply targets were first introduced, that the implementation of the model took its course. indeed, full implementation only came about after the untimely death of gerhard de kock in august 1989. in line with monetary policies applied in most developed economies, the south african monetary policy model is firmly directed towards the overall objective of creating and maintaining a stable financial environment. for central bankers, the ultimate price of a stable financial environment is a low rate of inflation - - a rate that, in the words of alan greenspan, will have no material effects on the macroeconomic decisions of consumers, investors, traders, producers and all other participants in total economic activity. this monetarist approach to monetary policy does not imply that central bankers have no interest in or sympathy for the national objectives of economic growth, job creation and the improvement of the living conditions of the people. on the contrary, central bankers believe that maximum economic development can only be achieved and sustained in an environment of stable financial conditions. the efforts of monetary policy must therefore be directed towards what central bankers can do best in support of the national objectives, and that is to manage the money system of the country in the interest of overall economic development. a stable financial environment is a precondition for sustainable economic development, but provides no guarantee that the real economy will indeed perform at maximum capacity. there are too many other macroeconomic ( and non - economic ) factors that will in the end determine the actual economic growth performance. there is, however, convincing theoretical logic and much empirical evidence to confirm that persistent unstable financial conditions are detrimental for growth, particularly in a country with an economy based on the principles of the market mechanism. the de kock commission therefore in 1985 summarised its findings as follows : “ ( the commission ) does not believe, for example, that anything can be gained in the long