victor mbewe : committee of sadc stock exchanges speech by mr victor mbewe, governor of the reserve bank of malawi, at the opening of the committee of sadc stock exchanges ( cosse ) 2008 first meeting, lilongwe, 31 january 2008. * * * the chairman of the committee of sadc stock exchanges ; delegates to the meeting ; distinguished ladies and gentlemen. i welcome all participants to this meeting, aware that some of you are visiting malawi, the warm heart of africa for the first time. i wish you all a pleasant stay. allow me to start by mentioning that we are privileged to host this meeting as it helps us all to take stock of how far we have recently moved towards creating a common market in southern africa. progress toward integration of capital markets on a regional basis will help spur accelerated economic integration goals in other areas. the harmonization of stock market regulations and trading practices that would accompany any regionalization of exchanges could deepen regional integration more broadly in policy areas such as foreign exchange, taxation, accounting standards, corporate governance and legal practices. i am aware that sadc exchanges have been working toward adopting a common framework for clearing and settlement. among other options under consideration are the establishment of a linked network of individual central depository systems tailored to the specific needs of member exchanges. i hope that the committee of sadc stock exchanges is also drawing up common standards for all stockbrokers operating in the sadc region. this would enable brokers based in one sadc member state to establish a presence in any other member state. regulation and surveillance of national exchanges ultimately will be carried out on a regional level. i hope that national exchanges will formalise the practice of regular reporting on your national surveillance and regulations. the exchange of information on national surveillance policies and practices will be used to devise a harmonised system of surveillance and regulation for the sadc region. the committee of sadc stock exchanges should also aim to develop the region ’ s bond as well as other securities markets, and you must continue encouraging national authorities to actively issue government securities on the region ’ s exchanges. there is broad agreement that foreign exchange control, regulatory and tax frameworks must also be harmonized before financial markets can actually link up. more specifically, this would involve harmonizing not only stock market regulations, listing requirements, and trading, clearing, and settlement procedures, but also transaction fees, accounting standards, corporate governance standards, disclosure requirements, common standards for stockbrokers, and national rules for capital

reaction was to accommodate the shocks by providing subsidies on oil products, leading to large budget deficits partially financed by the central bank. clearly these developments signaled an economy in distress, underlying the urgency of implementing policies to reverse the trend and restore stability. 6. of the economic challenges, the continuing high inflation was particularly worrisome due to its impact on fixed income earners, savers, investors and the poor. rising inflation creates uncertainty in long - term decision - making, delaying investment decisions and distorting business plans. therefore inflation has fundamental implications for long - term employment and growth. 7. given the adverse economic conditions just described, the government had to take decisions to improve the business environment. as i just stated with respect to inflation, business decisions are taken with a higher degree of confidence and certainty under stable economic conditions. consequently, monetary policy had to be decisive in reducing uncertainty and turning the economy around towards stability. 8. mr. chairman, the primary mandate of the bank of ghana is to maintain price stability. to achieve price stability the bank has to manage the supply of money. in classical theory, the control of the money supply is the basis of monetary policy ; the process through which the monetary authority controls the cost of money or interest rates and supply of credit, thereby influencing inflation, exchange rates and employment levels. 9. interest rate adjustments influence inflation. rising interest rates reduces consumption and investment thereby dampening aggregate demand. a low interest rate environment results in the opposite effect, raising consumption and investment ; therefore aggregate demand. 10. now let me turn my attention to the role of fiscal policy on the effectiveness of monetary policy. to a large extent, the achievement of a stable interest rate and credit environment depends on the size of government borrowing ( the public sector borrowing requirements or psbr ) and how it is financed. the sources for financing government borrowing within the domestic economy are the public and the banking system ( whether or not including the central bank ). when financed such government borrowing “ crowds out ” the private sector from accessing capital. it is often said that for “ every cedi government borrows, the private sector has one cedi less ”. but more importantly, the effect of excessive borrowing is to raise the cost of money. 11. mr. chairman, the interest rate policy setting process at the bank of ghana is very extensive. the objective is to gain a comprehensive understanding of the state of the economy. 12. to do this, we assess developments in the external sector