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The South African Reserve Bank was established in 1921 as a result of unusual financial and monetary conditions stemming from World War I (1914–1918).
At the time, commercial banks issued banknotes to the public, which had to be backed by gold. But the price of gold in the United Kingdom rose and became higher than the gold price in South Africa. Therefore, a profit could be made by converting banknotes into gold in South Africa and selling the gold in London. This meant that commercial banks had to buy gold at a higher price in London (for re-import into South Africa to back their banknotes in issue) than the price at which they converted their banknotes into gold. This “obligation to trade at a loss” posed a serious threat to the ability of banks to continue meeting their obligations.
To protect their financial viability, the commercial banks asked the government to release them from the obligation to convert their banknotes into gold on demand. This led to the Gold Conference of October 1919. Following the recommendations of the conference, a Select Committee of Parliament recommended the establishment of a central bank to assume responsibility for the issuing of banknotes and for taking over the gold held by commercial banks. The South African Parliament accepted the recommendation and published the Currency and Banking Act, Act No. 31 of 1920 in December 1920, which provided for the establishment of the SARB. At its establishment, the SARB had two primary objectives: to restore and maintain order in the issue and circulation of domestic currency and to restore the gold standard to pre-World War I rate of exchange. The SARB opened its doors for business for the first time on 30 June 1921 and issued its first banknotes to the public on 19 April 1922. The SARB is the oldest central bank in Africa.
In 1944, the Currency and Banking Act, Act No. 31 of 1920, was replaced by the South African Reserve Bank Act, 1944. The SARB’s initial 25-year period of issue for banknotes was extended indefinitely. South Africa abandoned the gold standard in 1932, choosing to link the value of the local currency to the pound sterling as the new monetary policy framework. South Africa introduced the rand on 14 February 1961, three months before the country left the Commonwealth to become a republic.
The SARB Act of 1944 was replaced with the South African Reserve Bank Act of 1989. The SARB accepted a formal mission statement for the first time in 1990. It stated that the aim of the organisation was to protect the internal and external value of the rand. This objective, albeit in a revised format (i.e., to protect the value of the currency), is also given as the primary goal of the SARB in the Constitution of the Republic of South Africa Act, 1996. Between 2000 and 2004, the SARB’s mission statement described its primary goal in the South African economic system as “the achievement and maintenance of financial stability”. From 2005 it was changed to “the achievement and maintenance of price stability”.