Page 44 - Demo

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South Africa and the South African Reserve Bank
Credit crunches, liquidity squeezes, wavering confidence in the gold standard, currency shortages, boom and bust economic cycles, bank failures, and a crisis of confidence converged as factors for the formation of central banks in the modern era and periods prior. That pertains to Europe, where the first central bank in the world was founded, and the US, whose Federal Reserve model inspired the institutional architecture of the SARB.
The former undertook what monetary theorists refer to as a traditional genesis of central banking, while the latter followed a trajectory that constitutes the modern means of central banking. The point of distinction is in the deployment of instruments at a central bank’s disposal, both during the good times and economic downturns.
Domestically, South Africa was booming in the latter part of the 19th century following the discovery of diamond and gold deposits on its shores. Prospectors soon made their way to the southern tip of Africa in search of riches. The attendant economic expansion came with the sort of economic structural complications and imbalances that could only be remedied by the establishment or existence of a central bank.
But “[it] is true ... the Reserve Bank ... was established under unfavourable conditions, namely, those prevailing shortly after the height of post-war inflation had been reached, and ... it had to commence operations and formulate its policy in a time of severe deflation and depression,” writes Dr De Kock, a former SARB Deputy Governor who later became the third Governor of the institution (1929, p 39).