South African rand manipulation lies

National Treasury and economists have repeatedly dismissed claims that the alleged manipulation of the rand by local and international banks influenced the currency’s long-term value and negatively impacted the economy. 

Despite this, many politicians maintain that the manipulation of the rand from 2007 to 2013 impacted the South African economy and is behind the currency’s consistent weakening versus the dollar. 

Earlier this week, some members of parliament, led by African Transformation Movement’s (ATM) Vuyo Zungula, wrote to National Assembly Speaker Thoko Didiza to launch an inquiry into rand manipulation. 

This follows the dismissal by the Competition Appeals Court (CAC) earlier this year of the Competition Commission’s case against major local and international banks. 

The ruling dismissed the claims against Standard Bank, Nedbank, and FirstRand, leaving just Investec and the four foreign banks whose traders pleaded guilty to charges brought by the US Department of Justice.

Investec remains in the case because it did not join the application to the CAC to prevent the case from going ahead.

The CAC dismissed the charges against some of the banks and financial institutions for various reasons.

This included a lack of jurisdiction to prosecute some of the international banks and an incorrect attempt to prosecute holding companies not involved in the alleged trades. 

In addition, some charges were dismissed for lack of evidence, with the court stating that the commission should have been more thorough in presenting its case.

Zungula told Newzroom Afirka that the Competition Commission was limited in its scope and Parliament must ensure that an adequate inquiry takes place. 

He said the inquiry must ensure the scope of the Commission’s case can be broadened and go beyond the 2007 to 2013 time frame. 

Apart from this, Zungula claimed that the manipulation during the seven-year period cost the South African economy up to R1 trillion a day and made individuals in the country significantly poorer. 

“When it comes to rand manipulation, it is the systematic impoverishment of people and the ripple effects that has,” he said. 

“As a result of rand manipulation, interest rates go up, and there is then a rise in the cost of living and loan repayments. This means people have less disposable income and are in perpetual poverty and debt.” 

Some of these claims are clearly false, particularly the R1 trillion a day impact of the rand manipulation. The National Treasury, alongside economists and South Africa’s biggest banks, has clarified the effect on the local economy. 

Late last year, the National Treasury released a statement explaining that the alleged rand manipulation from 2007 to 2013 did not affect the long-term value of the rand. 

“National Treasury views this matter in a serious light and welcomes the sanction in terms of which Standard Chartered Bank agrees and undertakes to pay an administrative penalty worth R42.7 million,” the statement said. 

Treasury official Christopher Axelson said there is no evidence that the price-fixing, which he explained ended in 2013, strengthened or weakened the rand.

Axelson said the reasons for weak economic growth and the declining value of the rand were the “significant constraints on our economy”. 

These constraints include load-shedding and logistics challenges, which have resulted in the country’s economic output remaining stagnant. 

“It is highly unlikely that there will be large impacts on the currency today compared to what occurred back in 2013,” Axelson said.

TreasuryOne director Andre Cilliers also explained that it is important to differentiate between short-term transaction flows and the economic fundamentals that dictate the long-term value of a currency. 

Currency manipulation, often associated with large-scale transactions such as mergers and acquisitions, involves collaborating banks that influence the bids and offers of a currency within a specific timeframe. 

Banks can enhance their outcomes when acquiring or selling currencies by manipulating the difference between a currency’s buying and selling prices. 

However, Cilliers stressed that this tactic is limited to so-called “big-ticket” deals and cannot override the impact of global events and economic fundamentals that shape the long-term trajectory of a currency.

He emphasised that this tactic is confined to these specific transactions and cannot fundamentally alter the long-term value of the rand.

For example, suppose two banks were to manipulate the spread between a bid and an offer in a big ticket deal on the same day.

In that case, a war breaks out, skyrocketing the oil price by 20%, the spread manipulation’s influence on the rand would be overshadowed.

Cilliers also addressed the claims of R1 trillion profits per day allegedly generated by the entities involved in the rand manipulation. 

These claims are false, considering South Africa’s annual GDP of R4.58 trillion at the end of 2022 and the sporadic nature of the collaboration between the involved parties. 

Renowned economist Dawie Roodt said many banks engage in “shenanigans”, but do not actively collude to influence the price of assets in an illegal manner. 

“These cases are extremely difficult to prove to start off with, and I am pretty sure it is not worth it for the banks even to try to collude and manipulate the currency,” he said. 

While it was still possible that some individual traders could have colluded and tried to manipulate the currency, it was certain that the banks would never collude at a management level. 

“I think this was a complete and total overreach by the Competition Commission. Its job is to ensure that we have a fair, competitive business environment. It is not its job to ensure that certain values are achieved with regard to specific assets,” Roodt said. 

“The Competition Commission must focus on ensuring that we have a competitive business environment in South Africa, which we do not have,” he said. 

Ultimately, it is not necessary for the Competition Commission to follow up on these sorts of cases that they are almost guaranteed to lose. 

“They have been unsuccessful in a few cases recently, and they thought it was going to be easy as the banks are not liked by the public. However, this was not the case.”

Roodt’s comments were echoed by Wits Professor Alex van den Heever, who said the rand manipulation case became a political issue rather than about holding banks to account. 

“The concern that I have is that it was made a political issue in which banks were attached as forming part of a systematic attack on South Africa. That was completely uncalled for, and the National Treasury made clear that it was not the case,” Van den Heever said. 

“The fact that we had this political huff and puff instead of getting one with the work of actually regulating is a concern to me because people had not done their work, and we need regulatory authorities with the capacity to do this work.”