What we are really doing is setting the return on the safest and most liquid rand asset – the yield on money – which our relatively large and sophisticated financial markets then factor into other asset prices, taking into account their different risk and liquidity characteristics.
In this way, our control of a relatively small asset class allows us to have significant effects on much larger financial markets, and ultimately influence the real economy. What exactly is this money we control? If you look at the Reserve Bank’s balance sheet, you will find two things that can be called money. One is notes and coin.