uncertainties that are currently prevailing. switzerland, as a model of macroeconomic rectitude and with its safe banking system, is a good example of this. in the context of increasing risk aversion, there is a search safety rather than for yield. the interest returns from investing in switzerland are minimal or negative, yet the country continued to receive significant capital inflows causing the swiss franc to appreciate to uncomfortably strong levels. attempts to stem the tide in 2010 through intervention were eventually abandoned after losses of around chf 30 billion were incurred. at that stage the swiss franc exchange rate was around chf 1, 45 to the euro. more recently, when the franc reached close to chf 1 against the euro, the swiss national bank reentered the market and announced its intention to prevent the franc from appreciating beyond chf 1, 20. to date they have been successful, but it is unclear whether this will be sustainable in the face of an extreme bout of risk aversion in financial markets. while flexible exchange rates help with adjustment, these adjustments are not easy or without costs. south africa ’ s attractiveness to capital flows and consequent appreciation pressures was in part due to the search for yield in an environment of abnormally low interest rates in the advanced economies. but the exchange rate response to risk aversion is the opposite to that of the swiss franc. since late july, as the eurozone crisis intensified, the rand, along with numerous other emerging market currencies depreciated. since july 2011, the rand has depreciated by about 20 per cent against the us dollar, and has traded in a range of between r6, 65 and r8, 50. as is often the case, the rand tends to be one of the more volatile currencies. nevertheless these movements have been mirrored in a number of other currencies, for example the mexican peso and the brazilian real. these exchange rate developments have implications for monetary policy. as was noted in the mpc statement, the exchange rate is now seen to impart an upside risk to the inflation outlook. how inflation responds to exchange rate movements depends on a number of complex factors, including the speed, duration and the extent of the depreciation. small changes usually have a relatively small impact on inflation, as is the case where the depreciation is expected to be of limited duration. furthermore, the extent to which pricing was

a structural growth problem with monetary policy, irrespective of our monetary policy framework. keeping interest rates artificially low may have short - term benefits, but it will result in higher inflation in the long run. we cannot ‘ buy ’ higher growth and employment through high inflation. in fact, high inflation inhibits growth. low inflation, by contrast, allows for lower interest rates and higher growth. whether we operate in an inflation - targeting framework or not, our objective will still be the protection of the value of the currency. inflation targeting is a framework within which to achieve this target. it makes our objective transparent and helps to anchor inflation expectations. we would not behave differently in the absence of an explicit target. inflation targeting has been successfully adopted by many other emerging markets as well, and more recently by a number of developing economies, including ghana and uganda. the issue of private shareholding in the sarb also needs addressing, particularly in this forum. private shareholding in central banks is an historical legacy, as originally central banks were in fact privately owned. this changed over time, particularly since the 1930s. apart from the sarb, there are nine other central banks that have some page - 8 - of 11 form of private shareholding. these include the us federal reserve system as well as the central banks of belgium, greece, italy, japan, and switzerland. the critical issue is the role that private shareholders play and the potential for conflicts of interest. in the sarb, private shareholding does not impart the same rights and benefits that shareholders in private companies have. the notion of a central bank as a public policy institution, with the main goal of promoting monetary and financial stability in the interests of the general public, is remote from the traditional concept of a commercial company with a profit motive. the sarb is an independent legal person, a public institution that has no profit motive and is not owned by its shareholders or anyone else. accordingly, shareholders in the sarb : have very limited rights ; have no role whatsoever in the setting of, or influencing, the key mandates of the sarb, i. e. monetary policy and financial stability policy ; have no sway over the day - to - day management of the sarb ; are restricted to a maximum of 10 000 shares per shareholder out of 2 million issued shares ( including those of their associates ) ; receive a fixed return on their shares of 10 cents per share from profits made ( this amounts to an overall divided payment by the sar