in comparison to imf estimates of reserve adequacy and our emerging market economy peers. the need to accumulate these reserves was driven by the imperative to reduce the country ’ s vulnerability to sudden large outflows of capital, something to which our economy is prone. we have made good progress in this regard in the past 10 years, with gross gold and foreign exchange reserves increasing from us $ 8 bn in june 2003, to current levels of us $ 47 bn. net reserves increased from us $ 1 bn to us $ 45 bn over the same period. during the past financial year, most of the moves in the level of reserves were a result of valuation changes relating to fluctuations in the gold price and exchange rate movements. direct accumulation was limited given the weakening of the rand over the period. however, our responsibility for managing these reserves has impacted significantly on the profitability of the bank. the financial statements presented to you today show that the bank has recorded a loss for the third consecutive year. for the 2012 / 13 financial year, a loss of r1, 5 billion was recorded, compared with r491 million in the previous financial year. it is important to elaborate on the nature of these losses, as they arise due to the unique nature of a central bank. the structure of the bank ’ s balance sheet is intrinsically linked to the diverse responsibilities of a central bank. as has been elaborated in a recent paper published by the bank for international settlements, central banks pursue national welfare and not profits. it follows therefore that profitability is not necessarily a good guide for measuring success, and a focus on profitability can lead to sub - optimal policies for the country as a whole. the bank ’ s activities and financial results should therefore be seen in a broader context and not within the artificial narrow confines of its balance sheet. the major source of our losses emanate from our accumulation and holding of foreign exchange reserves. when the bank purchases foreign exchange, it injects rand liquidity into the market. unless we neutralise this liquidity increase, it could have inflationary consequences. there are a variety of ways that we can do this through our open market operations, for example through foreign exchange swap transactions, conducting reverse repurchase transactions, or the issuing of reserve bank debentures. this process is known as sterilisation. however, while we are paying around 5 per cent ( linked to the current repo rate ) on these transactions, we earn very little on our holding

best from each national system without prejudice. progress is under way, including a contribution from italy, and must be continued. rules can contribute to forging the business model for all banks. if the rules change, banks must take this into account when deciding on their identity and strategy. we hope that the uncertainties in the global and european regulatory framework will be dispelled as soon as possible, because banks, especially in italy, must reinvent and redefine themselves ; and do so also in the light of new technologies. technology and its uses are changing fintech is the new buzzword at the centre of any debate on the future of banking. fintech companies make use of existing technology, and of new technology as it becomes available, to offer financial products to their customers that up to a few years ago could only be purchased through a bank. this business is expanding rapidly in the markets for loans, payment services, and financial advice and has managed to attract substantial funding from venture capital and private equity firms : last year such firms invested more than $ 13 billion in fintech. this is still a trifling amount compared with the trillions of dollars involved in global finance, but its growth is exponential. until very recently, the banks benefited from being the main gateway to the financial world for most of the population. by providing a simple but fundamental product like the current account, they were able to reach a vast client base and make profits. today, fintech companies are trying to unpack the bundle of financial services offered by the banks, leaving the latter with only the least profitable ones. fintech uses innovative data analysis techniques ( artificial intelligence and machine learning ) to process efficiently the information that individuals and companies put online, sometimes unknowingly ( big data ). using this data, algorithms calculate the creditworthiness of those applying for a loan and the result is available, on digital platforms not requiring a bank to act as intermediary, to the savers who directly disburse the financing. the method seems particularly profitable when an individual or a small company is asking for a loan : in this case, according to the advocates of fintech, an algorithm based on big data is far more efficient than an office peopled by bank clerks. fintech companies are radically changing the relationship between clients and financial service providers, even in terms of usability. they mainly meet the needs of younger people, enabling them to conduct financial transactions at any hour of the day or night using their