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Currency and Rand Manipulation Sends Shock Waves Through South Africa

Currency and Rand Manipulation Sends Shock Waves Through South Africa

In a striking disclosure that has cast a shadow over South Africa’s financial industry, recent findings have brought to light the extensive and covert manipulation of the South African rand. This revelation, involving Standard Chartered Bank and several other major banking institutions, has unveiled a complex web of unethical financial practices, raising serious questions about the integrity and oversight of currency trading in the country. As the details of this manipulation unfold, the impact resonates not just within the financial markets, but also among the general public, policymakers, and regulatory bodies, signaling a pivotal moment in South Africa’s economic landscape.

Currency Trading Under Scrutiny

In a recent development that has sent ripples through the financial sector, Makgale Mohlala, the Competition Commission’s divisional manager for cartels, revealed to the Competition Tribunal that an average of R1 trillion was traded daily in the currency market between 2007 and 2013. This revelation came during a period of heightened scrutiny of currency trading practices.

Standard Chartered Bank’s Admission

Mohlala, in a statement to the SABC, discussed the recent admission by Standard Chartered Bank (SCB) of its involvement in manipulating the South African rand. This admission places SCB among 17 other banks implicated in similar unethical practices. Earlier this week, SCB acknowledged its wrongdoing and consented to a R42 million settlement with the Competition Commission for its part in a scheme to rig trades involving the US dollar-rand currency pair.

Impact on the Trading Market

“There are buyers and sellers. South African firms that want to buy internationally, they’ll need to acquire the dollars in order for them to buy in the international market,” Mohlala explained. He further added, “If they buy in dollars that are expensive, because of the manipulation, they are losing money. South Africans that want to sell in the international market, have to sell using dollars, so if they have to sell using a dollar that has been weakened by manipulations, they are losing money.”

EFF Calls for Stricter Sanctions

The Economic Freedom Fighters (EFF) have voiced their concerns over this issue, as reported by The Star. The party has called for more stringent measures against banks involved in the manipulation of the rand. Criticizing the South African Reserve Bank for its alleged failure to effectively oversee the banking sector, EFF national spokesperson Sinawo Thambo highlighted the broader issues within the banking industry.

“The failure to deal with currency manipulation, however, is just a symptom of a banking sector that is a law unto itself,” Thambo stated. He also accused the Reserve Bank of “friendship-based nepotism” and a revolving door policy between banks, the National Treasury, and the Reserve Bank itself.

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Commission’s Response to the Settlement

The Competition Commission has welcomed the settlement with Standard Chartered, viewing it as a significant step in addressing currency manipulation. The bank’s admission of liability and agreement to pay a R42.7 million penalty is seen as a victory for South Africa, according to Commission spokesperson Siyabulela Makunga.

Public Reaction and Analysis

As the situation unfolds, the implications of Standard Chartered Bank’s admission and the broader issue of currency manipulation in the South African financial market continue to be a topic of significant public and regulatory interest.

How are ordinary people affected by this manipulation?

The manipulation of the South African rand by major banking institutions, such as Standard Chartered Bank, has far-reaching implications that extend beyond the financial sector, significantly affecting ordinary South Africans in various ways. Understanding these impacts requires a closer look at the broader economic landscape and the role of currency value in everyday life.

  1. Increased Cost of Imports: South Africa, like many countries, relies on imports for various goods, including technology, clothing, and even some food items. When the rand is weakened due to manipulation, the cost of these imports rises. This increase is often passed on to consumers, leading to higher prices for goods in stores, affecting household budgets.
  2. Inflationary Pressure: Currency manipulation can contribute to inflation. As the cost of imports rises, this can create a general increase in prices. For ordinary citizens, this means their money buys less than it did before, effectively reducing their purchasing power and standard of living.
  3. Impact on Savings and Investments: For those who have savings or investments, the value of these can be affected by currency manipulation. If the rand is weakened, the value of savings in rand terms may decrease when measured against stronger foreign currencies. This is particularly relevant for individuals with investments in foreign markets or those planning to travel or study abroad.
  4. Uncertainty in Business and Job Security: Businesses, especially those involved in international trade, may face uncertainty due to fluctuating currency values. This can lead to reduced investment, hiring freezes, or even job losses, indirectly impacting employees and their families.
  5. Retirement Funds: Many South Africans’ retirement funds are invested in portfolios that include foreign assets. Currency manipulation can affect the value of these assets and, consequently, the value of retirement funds, potentially impacting the future financial security of retirees.
  6. Increased Cost of Debt: For those with loans or mortgages linked to foreign currencies, a weakened rand can increase the cost of repayments. This can lead to financial strain for individuals and families who may already be managing tight budgets.
  7. Psychological Impact: Beyond the tangible financial effects, there’s also a psychological impact on citizens who lose trust in financial institutions and the stability of their national currency. This can lead to a lack of confidence in the economy, affecting consumer spending and investment decisions.

 

In summary, the manipulation of the rand has a domino effect that touches various aspects of ordinary South Africans’ lives, from the cost of daily goods to long-term financial security. It underscores the importance of ethical practices in the financial sector and robust regulatory oversight to safeguard the economic well-being of the populace.

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