The South African Reserve Bank (SARB), the central bank of issue, began operations in 1921, and in 1924 assumed liability for the outstanding notes of the commercial banks. It is the fourth oldest central bank to have been established outside Europe. It purchases and disposes of the entire gold output. In September 1985, because of a net outflow of capital arising from South Africa's declaration of a state of emergency, a two-tier foreign-exchange system was adopted by the bank, involving a commercial rand for current transactions and a financial rand for investments or disinvestments by nonresidents. At the same time, certain debt payments, mainly to foreign banks, were frozen. Limited payments were resumed in April 1986, and the two-tier foreign-exchange system was discarded.
The top four banks-Standard Bank Investment Corp. (Stanbic), Amalgamated Banks of South Africa (ABSA), First National Bank (FNB), and Nedcor-accounted for at least 80% of total bank assets in the country in 2002. Foreign interest grew with groups such as Citibank, Morgan Guaranty, and Standard Chartered, setting up and targeting the business end of the market. Although foreign banks are not allowed to accept deposits, over 41 fully licensed institutions, 15 local branches of foreign banks, and 61 representative offices of foreign banks were operating in South Africa in 2002. Offshore lending is popular.
Each bank is required to maintain a reserve balance with the South African Reserve Bank equal to 8% of its short-term liabilities. Since the commercial banks have restricted themselves to traditional functions, many other institutions have been established to make loans or investments to stimulate economic growth and development. The government has sponsored financial institutions such as the Development Bank of South Africa, the Corporation for Public Deposits, the Industrial Development Corp. (IDC), the Fisheries Development Corp., and the Corporation for Economic Development.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $36.3 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $67.6 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 8.84%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 9.5%.
The Johannesburg Stock Exchange (JSE) ranks 10th in the world in market capitalization. At the end of 2001, its total capitalization was $140 billion. The JSE dwarfs all sub-Saharan Africa's other active stock exchanges put together, accounting for 96% of their total market capitalization at the end of 1995. On 8 November 1995, the JSE underwent its "Big Bang" when the Stock Exchange Control Act came into effect, changing the system under which the market had operated for years. New capital adequacy requirements placed major financial obligations on broking firms, and the easy fixed-commission system for brokers disappeared. Most visibly, the traditional trading floor-the open outcry market-became a thing of the past as firms carried out all their trading by computer. Restructuring of the stock exchange also allowed banks to enter the securities markets as stockbrokers for the first time. However, market capitalization is now at about half of that peak level in 1995.