in determining the size, liquidity requirements and investment horizons of these tranches, foreign exchange liquidity needs of the bank and the national treasury are taken into account. while return has always been a lesser objective, it has received more prominence in recent years, given the increase in reserves globally and the low yielding environment in which the reserves are invested in. the bank, like many other central banks, complements its internal reserves management activities with a carefully structured external fund management programme. the first group of external fund managers were employed in 1999. we have refined the external fund management programme as we went along, with the most recent review initiated in 2012, with a view to completing this process by september 2013. apart from delivering excess returns against set benchmarks, this programme also has at its core a skills and technology transfer component. our staff members have benefited vastly from the knowledge transfer, which now allows them to manage more complex portfolios. but, over time our initial objective changed and we now also look at external fund managers with diversification in mind, allowing them, given their higher level of professional expertise, to do things that we can ’ t do. in this respect, they get more leeway in terms of risk taking and asset classes they can invest in. the bank established its first formal reserves management investment policy ( ip ) in 2007, to provide the strategic and operational framework and to define the investment criteria for the management of reserves. the aim of the process was to set investment objectives and related parameters for the reserves portfolios. in this, relevant target durations and benchmarks which are consistent with the bank ’ s risk tolerance were established. the evolution of the bank ’ s reserves management activities has necessitated the review and enhancement of the ip. the first such review took place in 2010, and apart from being a governance related review, provided an opportunity to not only take into account some of our own lessons learnt from the crisis, but also to align the policy with emerging best practices. the 2010 ip review led to the strengthening of the governance structure for reserves management and a reconfiguration and strengthening of the reserves management committee ( resmanco ). other initiatives currently under way involve improving our it infrastructure, and upgrading our risk management tools, monitoring, compliance and reporting systems. the ip has been reviewed again in 2012 / 2013, during which time we also bis central bankers ’ speeches undertook a benchmarking exercise, the results of which revealed some further areas of improvement, which we are taking

daniel mminele : establishing a proper governance framework for central bank reserves management address by mr daniel mminele, deputy governor of the south african reserve bank, at the institutional investor, africa sovereign funds roundtable, cape town, 7 march 2013. * 1. * * introduction good morning ladies and gentlemen. thank you to institutional investor for inviting me to address this roundtable meeting, and for choosing to host it in cape town. i trust those of you visiting south africa or cape town for the first time will have an opportunity to see the exceptional beauty that this part our country offers. judging by the agenda, i have no doubt that the discussions will be rich, as the topics being covered are all pertinent, and should allow us to exchange views and gain valuable insights to inform the work in our respective institutions in strengthening sovereign funds management operations and their oversight. i have been asked to talk on the topic of governance for central bank reserves management. with the increase in reserves assets observed in recent years, there has come a higher level of scrutiny with regard to how these assets are managed, in particular heightened interest around proper governance structures. as public investment managers we should welcome this trend, because reserves are public assets, which should be seen to be managed prudently and carefully while achieving appropriate returns. as some of you may be aware, the south african reserve bank ( the bank ) has made significant progress in recent years in enhancing our governance framework. 2. evolution of reserves management in south africa before i talk about the governance aspects of foreign exchange reserves management, i would like to first provide a brief history of the build - up of reserves in south africa, and the evolution of reserves management activities. in 1998, south africa had gross reserves of just us $ 6 billion, but was running an oversold forward book and consequently had a negative net open foreign currency position ( nofp ) of us $ 25 billion. this huge forward dollar commitment left the country in a precariously dangerous and vulnerable external position and resulted in our currency being deemed a one - way downward bet. the bank and the national treasury embarked on a drive to reduce the nofp to zero, and to build up the reserves of the country, with the former being achieved in march 2003. subsequently, there was a rapid build - up of reserves over the years, made possible by a combination of purchasing the proceeds of government ’ s foreign bond issues ; taking advantage of large fdi related inflows ; and purchasing foreign exchange