Chapter 13: The South African Reserve Bank

Question 1

5 Functions of the SARB

Answer 1

• Formulation and implementation of monetary policy (aimed at achieving an inflation target)
• Service to the Government
• Provision of economic and statistical services
• Financial Stability
• Provision of internal corporate support services and systems

Question 2

Formulation and implementation of monetary policy

Answer 2

• Refinancing system and interest rates
  The Bank’s influence on the level of interest rates through its refinancing system constitutes the essence of its monetary policy transmission.
• Open-market operations

Question 3

Why does the SARB conduct open-market operations (2)

Answer 3

• To neutralise or smooth the influence of exogenous factors on the liquidity position in the money market
• To create a liquidity shortage in the money market (i.e. where the commercial banks’ actual reserves are less than the legally required cash reserves)

Question 4

Service to the Government

Answer 4

• Custodian of gold and foreign-exchange reserves
• Banker and advisor to the government
• Administration of exchange control

Question 5

SARB’s main services to the government

Answer 5

• Administering the auctions of government bonds & Treasury bills
• Participates in the National Treasury’s debt management meetings and managing the flow of funds between the Exchequer Account and the tax and loan accounts ie where the commercial banks’ actual reserves are less than the legally required cash reserves.

Question 6

How does the SARB provide economic and statistical services

Answer 6

The bank collects processes, interprets and publishes public information, economic statistics and other information.
This information is used in policy formation.

Question 7

6 Ways the SARB aids in Financial Stability

Answer 7

• Bank Supervision
• National payment system
• Banker to other banks
• Sole issuer of banknotes and coin
• Lender of last resort
• Monitoring financial stability

Question 8

How is the SARB a “lender of last resort”

Answer 8

The Bank may in certain circumstances provide liquidity assistance to banks that are experiencing more fundamental long-term liquidity problems.

Question 9

Primary goal of monetary policy

Answer 9

To maintain financial stability in the South African economy.

Question 10

Main inclusions in monetary policy’s primary goal

Answer 10

Includes:

• Ensuring a stable financial sector where there is confidence in the financial institutions and the ability of financial markets to meet their obligations
• Maintaining a low and stable inflation rate (price stability).

Question 11

3 SARB monetary policy instruments

Answer 11

• The cash reserve requirement
• Open market operations
• Repurchase rate (Repo rate)

Question 12

SARB Open Market Operations

Answer 12

The buying and selling of government securities (financial market assets such as Treasury Bills and Government Bonds).
When it buys the securities it injects liquidity into the market and when it sells securities it drains liquidity from the market.