gill marcus : south africa ’ s new banknotes address by ms gill marcus, governor of the south african reserve bank, at the launch of the communications campaign for the mandela banknote series, pretoria, 5 september 2012. * * * good morning and thank you for being with us today. i know a number of you have travelled from abroad to be here, and we appreciate your attendance and participation. today is a momentous occasion. the south african reserve bank is launching a communication campaign to showcase the country ’ s new banknote series and to inform the public about the unique features of south africa ’ s new banknotes. the front of the new banknotes feature the image of south africa ’ s first democratically elected president, nelson mandela. the reverse side of each denomination features an image of one of the “ big five ” animals. the new notes have the same denominations, sizes and colours as the existing series, which was adopted twenty years ago. the design and production of this new series of banknotes has been a long but exciting journey for the reserve bank and our key partners in the public and private sectors. a country ’ s currency is a fundamental component of its national identity. it should be a reflection of its culture and heritage. south africa ’ s banknotes have reflected aspects of its culture and heritage since the inception of the south african rand in 1961. in earlier days, south african banknotes featured such diverse images as that of jan van riebeeck, and later the “ big five ”. what will surely become known as the “ mandela banknote series ” reflects south africa ’ s pride as a nation and pays tribute to a much - loved world icon. to give a brief history of south african banknotes : about 230 years ago the dutch governor joachim van plettenberg first introduced paper money in the cape. all the notes had to be handwritten because there was no printing press in the cape. the money featured a government fiscal hand stamp that showed the value of the money and the authority date of the issue. it was only in 1803 that notes were printed, but they still bore the fiscal hand stamp. the early currency, including the rix dollar and stiver denominations, played a significant role in the early economic development of our country. south africa later used the british pound sterling as its currency until 1961, when the rand was introduced. the “ big five ” theme was adopted after the unbanning of political parties and the release of political prisoners, reflecting what

would however signal that we are happy with inflation at these levels. but what would be the implication of setting a higher target range? almost immediately long - term inflation expectations would be adjusted to these levels, and wage and price setting behaviour would be adjusted as well. our inflation rate would most probably very soon be entrenched around the 15 per cent level, and in order to prevent it from rising further, we would very soon have to raise interest rates further. we cannot escape from the fact that a higher inflation trend requires even higher nominal interest rates. the increased risk premium associated with a higher expected inflation may result in even higher real interest rates. there can be no presumption that real interest rates with a higher target range will be any lower – they may in fact be higher. we cannot simply adjust the target range higher every time we move out of the existing one. the ultimate objective is low inflation, rather than to be within a target range. we would rather be outside a low target range, and focus on getting back to within it, than define ourselves to within a high target range. we accept that we could be outside the target range for longer than we would like as a result of these exogenous shocks. but we are nevertheless determined to maintain a focus on the inflation target range and get back to within it within a reasonable time frame. having a higher target will not only reduce our credibility and make south africa a less attractive investment destination for foreign capital, it will also result in a continuously depreciating exchange rate, as our inflation rate will be significantly higher than that of our trading partners. this is turn would translate into further inflation pressures. alternative proposals seek to redefine the target basket to exclude exogenous items such as food, electricity and petrol. that is a cop - out. in deciding on the appropriate monetary policy stance, we do look at various underlying core measures which do provide us with some idea of the underlying pressures in the economy. but we cannot ignore the headline figures which influence inflation expectation and other pressure points. we cannot run away from the problem and simply exclude a category every time its behaviour does not suit us. this will be a cosmetic change which will not help us get to grips with the underlying problem. we will also, most certainly, lose credibility in the eyes of investors ( both domestic and international ) as well as amongst global policy makers. this will not be helpful to south africa ’ s poor or the south african economy generally. 6