we will be in a position to make announcements soon. for example, the measures being considered relate to modifications in the operation of standing facilities offered by the bank as well as the use of longer - term foreign exchange swaps. the bank conducts money market swaps in foreign exchange as a fine - tuning tool to manage money market liquidity. foreign exchange market the size of the south african foreign exchange market, measured in terms of average daily turnover in usd, has fluctuated between usd10bn and usd15. 2 since the time of the last fmd cocktail, with the composition in terms of spot, forward and swap transactions remaining relatively unchanged. very much like in other parts of the world, conditions in the foreign exchange market continued to be volatile. the bank has continued its involvement in the foreign exchange market mainly for reserves accumulation purposes. as a result of the appreciation in the rand exchange rate in 2009 and earlier this year, there were heightened calls for the bank to intervene aggressively in the foreign exchange market or to even peg the rand to the us dollar. as indicated before, the bank remains committed to a flexible exchange rate regime, with the exchange rate determined primarily by the market. the commitment to a flexible exchange rate should, however, not be misunderstood as an indifference towards the exchange rate. the rand is one of the most volatile currencies and the bank is cognisant of the impact that this can have on business, and the uncertain operating environment it creates. extended periods of misalignment can lead to a misallocation of resources between sectors within the economy and lead to an uneven and unbalanced economic recovery. having acknowledged that certain sectors of the economy have been affected by what may be perceived to be a relatively strong exchange rate, it is also crucial to again highlight the importance of inflation management. one must bear in mind that a depreciation in the nominal exchange rate together with an increase in inflation would not lead to an improvement in the level of competitiveness of the rand. any consideration for more aggressive participation in the foreign exchange markets would also have to be carefully assessed against, among others, the prospects of success given the factors that may be driving the exchange rate in any particular direction at any given point in time. more aggressive intervention or pegging the rand to the us dollar would be a very costly exercise. firstly, how much foreign exchange reserves would be required to artificially peg the rand to the us dollar and to maintain this peg in the event of pressure to de

daniel mminele : the south african reserve bank ’ s activities in financial markets address by mr daniel mminele, deputy governor of the south african reserve bank, at the financial market department ’ s annual cocktail function, pretoria, 3 june 2010. * * * introduction good evening ladies and gentlemen and welcome to the fourth annual cocktail function of the financial markets department ( fmd ). it is our privilege to host this event. thank you for accepting our invitation. you are all familiar with recent economic and financial market developments, but please allow me to just briefly touch on these events from the perspective of the central bank. i will then discuss the bank ’ s activities in the financial markets given that, in some form or another you are all counterparties to our operations and activities in the financial markets, or are affected by what we do. international developments since the previous fmd cocktail at the end of july 2009, there have been a number of economic developments, which have had a significant impact on global risk appetite and trends in financial markets. for much of 2009, the eur was relatively strong, appreciating to usd 1, 51 in early december 2009. speculative currency positioning, as represented by weekly data from the commodity futures trading commission ( cftc ), showed aversion towards the usd in this period. the usd showed a net short position of over 280 000 contracts. the vix index, a popular measure of expected volatility, and often referred to as the “ fear index ”, hovered around its long - term average of 20 index points, while advanced and emerging market equity markets were recording double digit gains. in developed bond markets, short dated yields were declining owing to the still lax monetary policy, while long - term yields were rising in reaction to increased government debt issuance. emerging market bond spreads as measured by the emerging market bond index ( embi ) plus spread, had come off their high levels of almost 900 basis points in october 2008 to 280 basis points in december 2009. credit default swap ( cds ) spreads for the advanced economies and for certain european countries recently in the spotlight were also stable over this period, indicating little concern about sovereign default risks. money markets were also relatively stress - free, as reflected by the continued narrowing in overnight index swap ( ois ) spreads at the time. the global economy emerged from recession in the latter half of 2009, much sooner - thanexpected and at a pace that was stronger than even the most optimistic forecasts