but in the treaty it is nevertheless clear that the ecb can conduct monetary policy by means of asset purchases. and yet the germans are still concerned. they are rightly concerned about the possible side effects of qe : the creation of asset bubbles and reduced incentives for countries to initiate reforms and reduce their debt. however, the response cannot be to ask the central bank to internalise these unwanted consequences. we have a narrow mandate. instead, we need strong prudential policies and, in terms of fiscal policy, the strict application of the stability and growth pact. but was it necessary to humiliate the bundesbank? no such thing occurred. there was unanimity in the governing council that asset purchases are a legitimate monetary policy instrument. and then we discussed when to use it and whether the situation was bad enough to decide to use it. we will really try hard to explain that what we are doing is in the interest of the euro area, germany included. bis central bankers ’ speeches in your book, you talk about the isolation of the central banks. do you feel that strongly at the moment? central banks are independent, but they are not isolated. in europe, however, we need a coherent approach across monetary policy, fiscal policy and structural reform policy, as emphasised by president draghi at the jackson hole conference ( at the end of august [ ed. ] ). the understandable instinct of the governments is to respond to their voters. this is never easy and it becomes even more difficult in an environment of low growth and high unemployment. but our plea to the governments is to always remember europe ’ s common interest, because the actions of one affect all the others. that is why they must be coordinated. do you feel more mature, at the ecb, after last thursday? this is not about being mature, but about providing the right answers to a new situation, as the ecb has always done throughout the crisis. now, with asset purchases, we are like the other central banks, but with an instrument that is adapted to our specific environment, i. e. an environment which does not foresee a common fiscal policy. we are conducting qe in our own way. bis central bankers ’ speeches

represented the lowest annual average rate of inflation in south africa for the past 24 years. ominous signs developed over the past two years, however, with the rate of increase in bank credit extension escalating again to 18. 7 per cent in june 1996. the rate of increase in the m3 money supply also rose to 16 per cent in october 1996, while inflation gradually crept up from a low of 5. 5 per cent over the twelve months up to april 1996, to 9. 4 per cent over the twelve months up to december 1996. the current stimulus for inflation emanated mainly from the depreciation of the rand last year, but there is a danger that, if not checked at this stage, it could easily be converted into a new cycle of a continuous rise in the rate of inflation. the reserve bank was therefore forced once again during the past year to pursue a more restrictive monetary policy that led to an increase of approximately 3 percentage points in the level of interest rates. towards the end of 1996, the more restrictive policies began to produce results when both the rates of increase in bank credit extension and in the money supply slowed down. over the twelve months up to december 1996, bank credit extension to the private sector rose by 15. 7 per cent, and the m3 money supply by 13. 7 per cent, both marginally down from the peaks established earlier in the year. inflation is, however, still creeping upwards and it will take some time before the full effect of the depreciation of the rand will work itself out. in the meantime, it is of great importance that all other inflationary impulses in the economy, such as excessive rises in government expenditure or real wage rises in excess of productivity increases, and of course, a continuation of the excessive rates of increase in the monetary aggregates, must be avoided. the depreciation of the rand can bring many benefits for economic growth and development, provided the advantages for international competitiveness will not be dissipated very quickly by rising costs of production and a rising rate of inflation in the domestic economy. the year 1997 is indeed a testing period for the reserve bank and for the monetary policy applied by the bank. should the bank fail in its efforts to protect the value of the currency at this stage, the goals set by government for economic reconstruction and development, and the implementation of the government ’ s strategy for growth, employment and redistribution will not be attainable.