SA Reserve Bank warns of increased risk of US sanctions

The South African Reserve Bank (SARB) added sanctions against the country by the United States as a new risk in its new Financial Stability Review (FSR).

The SARB publishes the FSR twice a year to communicate its views on the potential risks to financial system stability and the policy actions to address them.

It is the primary channel through which the SARB communicates with the public about financial stability-related matters.

The SARB’s latest FSR listed the usual risks, including tight global and local financial conditions, high interest rates, the FATF grey listing, load-shedding, and poor economic growth.

Since the November 2022 FSR release, two new risks have been added.

• Capital outflows and declining market depth and liquidity.
• Secondary sanctions amid heightened geopolitical polarisation.

The SARB said South Africa’s desire to maintain political neutrality might not be perceived as such, potentially resulting in secondary sanctions imposed by the United States.

The South African financial system will not be able to function if it cannot make international payments in US Dollars.

More than 90% of South Africa’s international payments are currently processed through the Society for Worldwide Interbank Financial Telecommunication system, Herco Steyn, the lead author of the report told reporters.

“Should South Africa be banned from SWIFT as a result of secondary sanctions, these payments will not be possible,” he said.

There will also be a loss of correspondent banking relationships and more intensive scrutiny of South African financial institutions by foreign counterparts, even without formal secondary sanctions.

It will further cause a sudden stop to capital inflows into South Africa and increased outflows out of the country.

The diplomatic fallout resulting from the comments by the US Ambassador to South Africa on 11 May 2023 led to a sharp sell-off in the South African rand.

It reached its worst-ever level against the US dollar, trading at R19.51 to the US dollar on 12 May 2023.

“South Africa’s non-aligned stance in the war between Russia and Ukraine is increasingly being questioned,” the FSR report said.

“It may pose a future threat to the participation of South African financial institutions in the global financial system and increases the likelihood of secondary sanctions.”