##plined lending policy pushed up inflation, thereby contributing to the social unrest of 1918. this sparked a broad debate on the snb ’ s responsibility for the massive price rise. these events, along with the subsequent tragedy of german hyperinflation, left a strong mark on the national bank. it must have been at that time that the snb fully realised the complexity of its task. in particular, it recognised how important it was to preserve the country ’ s good monetary health – and this was long before the law made price stability a priority goal within the snb ’ s policy. since then, and even during the most turbulent phases of the 20th century, the determination to ensure monetary stability has emerged as a guiding principle for the national bank ’ s activity. in its quest for stability, the snb strove to apply the rules of the gold standard consistently, accepting the federal council ’ s decision to devalue the swiss franc in 1936 reluctantly, as a trial imposed upon it from outside. also, when switzerland found itself isolated in the second world war, the snb tried to avoid repeating the mistakes made during the first world war so as not to further aggravate an already difficult situation through monetary instability. preserving domestic stability and maintaining the country ’ s ability to meet international payments were thus accorded priority. after the war, the new order established at the bretton woods conference was intended to ensure international monetary stability. however, this goal was not achieved. in switzerland, the disequilibrium in the balance of payments became even more exaggerated, and the fight against inflation called for the joint efforts of the federal council and the national bank. in 1973, the national bank decided to stop intervening on the foreign exchange market and to float the swiss franc. this measure was also designed to safeguard monetary stability, which was jeopardised by the massive inflow of speculative funds. maintaining the internal balance in a highly unstable international environment was the main focus of the monetary policy decisions in the years that followed. in switzerland, price stability has been ensured since 1994, but it was only ten years later that it was also made a statutory goal of our policy. central bank autonomy this constant pursuit of monetary stability would not have been possible if the national bank had not been able to act independently – an essential advantage – since the day it was founded. the principle of central bank autonomy is widely recognised nowadays. price stability can be better ensured if the institution responsible for conducting monetary policy has

, interest rate policy should remain a monetary policy tool and be the main instrument to control inflation. other policies, which could be well targeted, would need to be introduced in order to deal with financial stability risks. this suggests a need for a different committee, separate from the monetary policy committee. although it does not necessarily follow that such a committee should be located within the central bank, it is generally the model that is followed. sweden is a notable exception, where the responsibility for financial stability lies outside the central bank. there are strong arguments for locating the financial stability function within the central bank. charles goodhart argues that the essence of central banking lies in its power to create liquidity by manipulating its own balance sheet, i. e. to lend either to an individual bank or to the market as a whole. to quote him : “ it would cause massive complications if liquidity management remained the sole province of the central bank while a separate financial stability authority was to be established without any command over liquidity management. i infer from that that the financial stability authority has to be given command over liquidity management ; but that also implies that the financial svensson, l e o. ( 2014 ). ‘ monetary policy and financial stability are different and normally best conducted independently ’. paper presented to european central bank forum on central banking. page 8 of 12 stability authority would have command over the central bank balance sheet. indeed the financial stability authority would then, de facto, become the true central bank. ” 4 there are practical advantages to allocating monetary, microprudential and macroprudential policy responsibilities to a single institution. such an arrangement makes the coordination of different policies much easier, be it through crisis prevention or crisis management. this is particularly relevant during times of a financial crisis when the situation tends to deteriorate very rapidly and quick responses are required. in south africa, we have adopted the latter approach. the responsibility for financial stability has been given explicitly to the sarb, and is overseen by an internal financial stability committee ( fsc ). the fsc monitors the broader financial system but does not regulate or supervise individual banks. this remains the responsibility of the bank supervision department at the sarb. this department will be transformed into a prudential authority ( pa ) in terms of the financial sector regulation bill ( fsr bill ) that has recently been through the parliamentary process and currently awaits the signature of the president. once established, the pa will regulate individual banks, insurance companies