structural reforms. this inability to do so creates unreasonable expectations for monetary policy to achieve objectives that it is not competent to deliver. ultimately it could lead to an undermining of central bank credibility and institutional strength, even in those areas where it is best suited to operate. the exchange rate and competitiveness as i mentioned earlier, when people think about global competitiveness, the exchange rate immediately comes to mind. central banks talk about the exchange rate and global competitiveness, we are referring to the real exchange rate, or the nominal exchange rate adjusted for inflation differentials between south africa and its trading partners. a depreciation only improves competitiveness if it is not eroded by higher inflation. in other words, if it is a real depreciation. so the bank ’ s contribution to keeping inflation low is relevant in this respect. our constitutional mandate to protect the value of the currency is often interpreted as a mandate to keep the nominal exchange rate stable. in the absence of other shocks, the exchange rate should remain stable if our inflation rate is the same as that of our trading partners. but assuming our inflation rate is higher and we attempt to maintain a stable exchange rate ( and assuming that we have the means to do that ), our real exchange rate will in fact be appreciating. in other words, we will be losing competitiveness, as the cost of producing goods domestically will have increased relative to our competitors. this persistent overvaluation of the currency will not be sustainable. since the beginning of 2011, the real effective exchange rate has depreciated by 26, 8 per cent, in contrast to the nominal effective depreciation of 41, 9 per cent. so on this measure we are more competitive, but we have not seen a strong adjustment to this, as evident in the persistent current account deficit. there are a number of possible explanations but i will highlight a few points. it is important to understand what the key drivers of the depreciation have been. while there are a whole range of factors that impact the rand on a day to day basis, terms of trade changes and capital flows have been among the key underlying drivers or determinants. falling commodity prices since 2011 have been an important factor in the weakening of the rand. this does not necessarily provide an impetus for increased production of commodities, but rather it shields the rand value of mining output. it does make non - mining exports more attractive, and that is how the adjustment is supposed to work. in other

- standard policy measures have been very effective in supporting the financing conditions of companies and households throughout the euro area should not make us forget the situation we witnessed at the peak of the crisis. for example, institutional weaknesses, structural fragilities and excessive risk - taking contributed to a negative feedback loop between sovereigns and banks in some countries, which significantly impaired monetary policy transmission. the resultant contraction in the euro area economy threatened price stability, our primary objective. overcoming this vicious circle required considerable effort. the pattern is now running in reverse, with positive spillovers from all countries. they all have benefited from our measures supporting growth across all of the euro area and thus laying the ground for a sustained return of inflation to levels in line with our aim. but while a cyclical adjustment has been taking place, there are still structural issues which impede sustainable economic convergence. in the years to come, a higher degree of sustained convergence and strengthened resilience will be necessary in order to achieve a better - functioning economic and monetary union. this requires, on the one hand, policy actions by national governments aimed at unlocking the productive potential of our economies. on the other hand, further decisive steps are needed to make economic and monetary union ’ s economic governance truly fit for purpose. thank you for your attention. i am now at your disposal for questions. 1 spreads over the corresponding aaa - rated euro area average yield curve. 2 article 12. 1 of the statute of the european system of central banks and of the european central bank. 3 article 14. 3 of the statute. 4 / 4 bis central bankers'speeches