Finance

Big lies about rand manipulation

Dawie Roodt

Renowned economist Dawie Roodt said the banks did not contribute to the weakness of the rand through their alleged price-fixing between 2007 and 2013.

He said the alleged currency manipulation was negligible in the long-term value of the rand, and the country was unaffected.

“A few companies and individuals who exchanged currencies may have paid too much, but the country did not lose out,” he said.

His comments followed an announcement by the Competition Commission that it had reached a settlement with UK-based multinational bank, Standard Chartered.

The settlement relates to various banks fixing prices of bids, offers, and bid-offer spreads in relation to spot trades of ZAR currency pairs between 2007 and 2013.

The price fixing was achieved through bilateral and multilateral communications using instant messaging platforms and other means of communication.

The banks also assisted each other by allowing a trader with a large open risk position to complete their trades first.

The other banks would hold or pull their trades to reverse liquidity for each other instead of trading normally in the market. This would maximise profits.

While this price-fixing contravenes the Competition Act and should be punished, a great deal of misinformation has been spread about what happened.

Many politicians have also misinterpreted the case and used it to attack banks and businesses.

One such politician is Minister in the Presidency Khumbudzo Ntshavheni, who said the case proved the private sector has no interest in developing the country and wants to collapse the government.

“The performance of the rand and sometimes the economy has been manipulated by the private sector, which has no interest in developing this country,” she said.

She added, “They continue to engineer and do machinations to ensure the government collapses”.

Her comments were slated by numerous business leaders, who described them as shocking, far from the truth, and misguided.

Roodt said Ntshavheni’s comments made him extremely angry because the mismanagement by the ANC government causes South Africa’s economic challenges.

“The poor state of the economy is because of the incompetence and corruption of the ANC government,” he said.

He added that the banks and the private sector are the only groups keeping the economy from collapsing.

“We have a government which is actively undermining the South African economy. If it was not for the private sector, there would not have been anything left,” Roodt said.


Myth 1 – Banks weakened the rand

Makgale Mohlala
Makgale Mohlala, head of cartels at the Competition Commission

Roodt said the banks did not contribute to the weakness of the rand through their alleged price-fixing between 2007 and 2013.

“Banks are agnostic towards the value of the currency. They are only interested in making more money,” he said.

“They make money whether the currency appreciates or depreciates, and they cannot be blamed for the weakening currency.”

Roodt added that the impact of the currency manipulation by the banks was so small that it would, even in hindsight, be impossible to say whether manipulation took place.

“It was also in both directions – weakening or strengthening the currency. Over time, the market would simply smooth it out,” he said.

Makgale Mohlala, head of cartels at the Competition Commission, substantiated Roodt’s views. He said the bank’s manipulation depended on whether they were buying or selling currencies.

The banks would, on specific deals, manipulate the bids to increase their profit. It could mean weakening or strengthening the rand, depending on whether they were buying or selling.

He added that while the value changed during these specific deals, it did not impact the rand’s strength against the US Dollar long term.


Myth 2 – Rand manipulation harmed the economy

South Africa’s Finance Minister, Enoch Godongwana

The National Treasury has refuted allegations that the rand manipulation investigated by the Competition Tribunal is the cause of South Africa’s economic woes.

Treasury said the rand’s collapse over the years had nothing to do with the Competition Tribunal’s case or the misconduct involved.

It added that the currency manipulation being investigated ended in 2013 and that rules and regulations have long been implemented to mitigate and avoid this behaviour.

“Whilst the wrongdoing described by the Competition Tribunal harmed individual clients, it would not have influenced the depreciating trend of the currency since 2013,” Treasury said.

It explained that the rand’s strength and weakness were driven by broader changes in the global and domestic economy.

“The value of the currency today, which has depreciated against the dollar, and the resulting impact on prices, should not be attributed to these instances of misconduct between 2007 and 2013.”


Myth 3 – Banks profited by around R1 trillion per day

Lebohang Pheko
Lebohang Pheko

An SABC report stated that the Competition Commission said banks in the alleged rand manipulation had generated about a trillion rand a day between 2007 and 2013.

Mohlala dismissed this report, saying although the global currency trade amounts to trillions, rand trading is only a fraction of that.

Lebohang Pheko, a senior research fellow and political economist at Trade Collective, said it was economically impossible to generate or trade a trillion rand per day.

She highlighted that the value of South Africa’s gross domestic product in the first quarter of 2013 was R1.4 trillion. The GDP for the entire year was R4.7 trillion.

A total annual GDP of R4.7 trillion translates into around R13 billion per day. It is, therefore, impossible for banks to come close to the R1 trillion figure.

Pheko said that all global banks put together would hardly be able to generate R1 trillion per day.

The Competition Commission’s comments were, therefore, misinterpreted, and the R1 trillion per day figure was ridiculous.


Myth 4 – Standard Chartered Bank received a slap on the wrist

Dawie Roodt
Economist Dawie Roodt

Standard Chartered Bank reached a settlement with the Competition Commission and agreed to pay an administrative penalty of R42.7 million.

In addition, Standard Chartered Bank also agreed to cooperate with the Competition Commission in the prosecution of the matter.

Roodt highlighted that it is extremely difficult to prove and prosecute currency manipulation, which makes settlements attractive to the commission.

Mohlala explained that while Standard Chartered is a large multinational bank which generates billions in profit, its operations in South Africa are very small.

The R42.7 million penalty should be seen in terms of its size in South Africa rather than its global operations.

“Standard Chartered Bank has a branch in South Africa for trading, which is much smaller than the large South African banks,” he said.

“Their turnover in South Africa is not as big as people think. The fine is based on a bank’s annual turnover in the country.”

Apart from the fine being adjusted according to the size of the bank’s South African operations, there are also other considerations.

Mohlala said they want to encourage as many banks as possible to pro-actively settle with the commission, and very harsh fines would discourage that.


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