MONETARY FACTORS IN SOUTH AFRICA'S POST-WAR DEVELOPMENT

During the period 1949–60 the Government encouraged development of the money market. This, coupled with increased gold production, encouraged a “liquidity boom.” The only serious monetary crisis during the period was political, and the fact that this coincided with a strong upward movement in gold production largely explains how the crisis was handled without a major monetary adjustment, such as devaluation. The marked increase in gold production prevented any serious balance of payments deficits during years of sharply increased business activity. There was also sufficient gold to support marked credit expansion by the growing banking system. Indeed, except for the political crisis period 1960-61, the chief concern of the Government since the early 1960's has been excess liquidity in the monetary system. Prior to 1960, the Government's attitude was that cyclical fluctuations (and their varying effects on liquidity) could be effectively handled by the usual monetary, fiscal and trade controls available up to that date. The Severe crisis of 1960-61 led to an investigation of the monetary system and the passage of new laws aiming at greater equity as between banking institutions, more effective allocation of resources, protection of bank customers, and more effective control of excess liquidity and inflation. In 1964, inflation accelerated. The banking amendments came into effect almost immediately thereafter. During the past 3 years, the Government has made strenuous efforts to curb inflation. These efforts stressed monetary, fiscal, and import controls. Consumer credit controls have been used more effectively since 1965, but evasion of these controls has continued to be somewhat of a problem [25]. Apparently there has been some reluctance to use an “incomes policy” [3, p. 91. A device not widely used until recently was the so-called “credit directive” which was in the form of a ceiling on private credit. Initially, it was not entirely effective, but towards the end of 1967 there was evidence that the authorities' efforts to curb infiation were having some success, as the rate of price increase in the first half of 1968 has been less than in 1967, which in turn was less than the increase in 1966. The real growth rate in 1967 was nearly 7 percent, which was higher than the average of the preceding several years, but was attributable in considerable part to increased agricultural production which benefited greatly from u n d y good weather conditions [15, March 1968, p. 61.] several of the years immediately preceding 1967 were poor ones from the point of view of agriculture [6, p. 131).