a way of resolving problems of financial distress, with the authorities playing a major role in the process. indian context while there has been a significant progress towards globalisation in the recent past and policy - wise, there have been impressive initiatives, the extent to which india is globalised is considerably at the lower end of the emerging economies. this indicates enormous opportunities but also challenges in terms of transition from a stage of low base. more importantly, the issue of financial integration and in particular the integration of banking sector has to be considered in terms of overall sequencing in this process of integration with the rest of the world. the overriding issue is not whether to globalise or not, but how best to manage the process of globalization, particularly with a view to accelerating the process at the current juncture where the global outlook on india and india ’ s confidence as well as competitiveness are strong. there is now a consensus among academicians and policy makers that trade liberalization should take precedence over financial liberalisation. even in the context of financial liberalisation, the liberalisation in regard to borrowings in foreign currency should have a lower priority compared to all other capital flows. there is also consensus that the foreign currency exposures of households, corporate sectors and financial intermediaries should be assessed separately and in a continuous fashion to assess the gains as well as the vulnerabilities to the system. in particular, there is a greater recognition of the need to put in place appropriate prudential regulation in regard to the financial intermediaries insofar as foreign currency transactions are concerned in all emerging countries. there is virtual unanimity that the currency mismatches of financial intermediaries is a major source of downside risks of financial integration which can be mitigated by monitoring and regulations. among the financial intermediaries, banks no doubt have a unique place. there is also a strong consensus, globally, on the importance of what have been described as preconditions for capital account convertibility - in particular on the fiscal front and efficiency of the financial sector. in the context of maximising benefits of financial integration and minimising the risks, the link with conditions in the real sector cannot be lost sight of. in china, reforms in real sector preceded reforms in the financial sector and it was possibly the reason for some vulnerability of the latter. in india, reforms in financial sector started early in the reform cycle which imparts significant efficiency, and stability to the financial sector. the financial sector can

. the average value of the rand against foreign currencies for the first ten months of the year is about 6 per cent lower compared with the average value for the first ten months of 1996. 3. implications for monetary policy monetary policy decisions in south africa are guided mainly by developments in financial aggregates such as the money supply, bank credit extension, money market liquidity, market interest rates, the official foreign reserves and the exchange rate. there is, over time, obviously a relationship between developments in the financial aggregates and in real economic activity. the growth rates of most of the financial aggregates over the past few months showed a marked slowdown, particularly the rates of growth in the components of gross domestic expenditure, which already started to decline in the second half of 1996. critics of the reserve bank are often of the opinion that monetary policy should be linked more directly to changes in real economic activity, and not to changes in the financial aggregates. the experience of the 1960s and 1970s, when monetary policy was still guided by keynesian demand management principles, proved that premature relaxations of monetary policy could easily lead to “ stop - go ” or “ boom - bust ” economies, and to a persistent rise of inflation to a higher level after the completion of each successive business cycle. in the modern approach of supply side economies, monetary authorities in most countries now link policy changes with great success rather to changes in the financial aggregates. there is therefore a different and more effective timing of changes in monetary policy. taking account of developments in real economic activity in south africa over the past year, in the overall balance of payments and in the financial markets, the reserve bank adopted an easier monetary policy stance already in the middle of 1997. the bank acquiesced in gradual increases in money market liquidity, and also in the declines of market interest rates such as the yield on long - term government bonds and treasury bills, and on bankers ’ acceptances and negotiable certificates of deposit. the reserve bank endorsed the easier monetary conditions by reducing the bank rate from 17 to 16 per cent on 20 october 1997. 4. recent developments in the monetary situation since the last week of october, turmoil in the currency and capital markets overflowed the cauldron of certain overheated east asian economies and disrupted also the south african financial tranquillity. these developments led to some substantial selling of south african bonds and equities by non - residents, sharp declines in equity prices, volatile conditions in