term financial stability? in a broad sense financial stability can be defined to include price stability as well as stable conditions in the financial sector as a whole. price stability is achieved when changes in the general price level do not materially affect the economic decision - making process. although relative price movements will still have an impact on production, consumption and investment, the rate of inflation or deflation is not an important factor in the decisions taken by producers, consumers and the authorities under stable price conditions. the stability of key institutions and markets in the financial system is achieved when there is a high degree of confidence that the financial infrastructure of the economy is able to meet the requirements of market participants. however, it is important to realise that financial stability does not exclude the failure of individual banks or financial institutions. a financial institution can go bankrupt in stable financial conditions. it is only where systemic risks arise, i. e. where the financial sector as a whole may be influenced by an incident, that the situation can be described as financially unstable. the two elements of financial stability, i. e. price stability and stability of the financial sector, are closely related. failure to maintain one of these elements provides a very uncertain operating environment for the other, with causality running in both directions. for example, high inflation can lead to tighter monetary policy, higher interest rates, an increase in the non - performing loans of banks and a fall in asset and collateral values, which can cause bank and other failures in the financial sector. conversely, disruptions in the financial system will make the transmission mechanism of monetary policy less effective and can materially affect changes in the general price level. 4. monetary policy framework in its objective to establish and maintain financial stability it is therefore important that the reserve bank encourages and supports the development of sound and well - managed banking institutions. this is done, firstly, by monitoring the financial risks that banks undertake. the bank supervision department is charged with the responsibility to ensure prudential soundness in the banking system. secondly, lender - of - last - resort assistance is provided to banks to safeguard the system from systemic risks. this assistance is never provided automatically to any bank that encounters difficulties, but it is only applied in cases where a bank is encountering liquidity shortages and where its failure would pose a serious threat to the financial system as a whole. financial stability also requires well - developed and efficient functioning financial markets. in this regard it is important to have sufficient banknotes and coin in circulation,

francois groepe : opportunities and challenges – the south african national payment system address by mr francois groepe, deputy governor of the south african reserve bank, at the pasa international payments conference, sandton, 25 july 2016. * * * introduction ladies and gentlemen, good morning. it is an honour and a pleasure to address the second pasa international payments conference, and i would like to thank the organisers for the invitation to open the proceedings. the timing of this conference is highly appropriate as we are entering a new phase in the south african payment and financial regulatory environment, coupled with significant changes to the international regulatory architecture and framework. not only do we have to contend with challenges in our domestic environment, but we need to be cognisant of the challenges facing the global economy, such as pedestrian growth, low commodity prices, increased geopolitical risks, and a high degree of market uncertainty and volatility. all these factors combined make the economic and financial environment very challenging and rapidly evolving. this morning, i will take a look at the current payment system landscape, highlighting some of the opportunities and challenges that we can expect to face in the near future and where we, the regulators, would like to see the national payment system in the next few years. legislation, regulation, governance, and the south african national payment system the south african payment system has not escaped the fallout of the most recent global financial crisis. following the crisis, global regulators increased their scrutiny of payment systems and of financial market infrastructures ( or fmis ). this has resulted in numerous regulatory reforms, including legislation to strengthen the financial regulatory architecture. south africa will have new, far - reaching and overarching, financial sector legislation by the end of 2016. from a payment system perspective, it will include the introduction of new and more comprehensive regulations as well as expanded oversight and supervision by various regulators. furthermore, as you are aware, the committee on payments and market infrastructures ( or cpmi ) of the bank for international settlements ( bis ) as well as the international organisation of securities commissions ( iosco ) 1 published new principles for fmis in april 2012. as a result of the new international and domestic regulatory requirements, as mentioned above, it has become necessary to re - evaluate the national payment system act 78 of 1998 ( nps act ). the factors that will have to be taken into account include access and participation criteria, licensing criteria in line with international standards for fmis, the governance arrangements in