SOUTH African workers ultimately carried the burden of the manipulation of the rand by South African and international banks through retrenchments and lower salaries, while export companies would also have been impacted, economists and labour unions said yesterday.
Standard Chartered Bank last week agreed to pay R42.7 million in settlement for manipulating the rand through fixing bids, offers and trades in alliance with other banks between 2007 and 2018.
In 2017, Citibank also paid R69.5m in settlement with the Competition Commission for similar charges, while 26 other banks are appearing before the Competition Tribunal for this.
The Competition Commission has put up a value of R1 trillion as the value of the manipulated foreign exchange trades by the banks. It alleges that other banks such as Barclays Africa (now Absa), BNP Paribas, BNP Paribas South Africa, Citigroup Inc, Investec Ltd, Citigroup and Standard New York Securities Inc, among others, were also involved.
Gideon du Plessis, the general secretary of trade union Solidarity, said yesterday that the emergence of news that banks manipulated the rand piled pressure on South African employees who were already struggling to keep their jobs in light of a wave of lay-offs, especially across the mining sector.
“Whilst we thought that we don’t really have control over the other elements that negatively affect the industry like commodity prices, geopolitics, and exchange rates, we have just learnt that exchange rates are being manipulated,” he told Business Report.
Mining companies such as Sibanye-Stillwater, hard-done by plummeting prices and rising inflation staked against high interest rates, have been retrenching workers, while others such as Impala Platinum have asked workers to take up mutual retrenchment schemes.
South African companies in other sectors have had their financials and prospects blighted by exchange rate fluctuations in the rand.
“Given the weaker exchange rates and the negative impact they have and will have on the industry, workers and their dependants will carry the burden either as a result of retrenchments or by receiving lower salary increases,” Du Plessis explained.
Former Nedbank investment banker Paul Miller was worried that the manipulation of trades by the banks’ dealers at the time may have cost the banks’ clients. However, he said the R1 trillion value propagated by the Competition Commission was doubtful.
“Some traders may have manipulated the spread on individual trades to give themselves a better profit on individual trades. Their customers should be outraged and demand compensation,” Miller said in an interview.
Questions continue to be asked over the oversight and regulatory roles of the South African Reserve Bank (SARB) in the banks’ forex dealings. The SARB might have lacked proper oversight considering that the dealings in question took place over a long time, said sources, raising calls for reforms to be implemented at the central bank.
Economists believe that, if found guilty, the penalty payments by the banks will have a “detrimental effect on the lending capabilities of these banks, with a negative knock-on impact” on overall economic activity across South Africa. The bigger impact would be on confidence levels in South Africa’s banking system.
Jane Morley, the head of sub-Saharan Africa risk for Fitch Solutions, said: “The manipulation of the rand is likely to have adversely impacted the profitability of small-scale enterprises that are heavily dependent on importation or exportation.
“This manipulation is also likely to have impacted the financial burden on individuals transacting funds into and out of the economy, including remittances.”
South Africa is a major remittance source market for the region, given its high expatriate population from neighbouring countries such as Zimbabwe, Mozambique, Lesotho, Namibia and eSwatini.
Initially, these fines could exert significant pressure on the sector’s profitability margins. Fitch Solutions is already forecasting an erosion in South African banks’ capital reserves, and this could be worsened by an industry-wide penalisation for rand manipulation.
“There is a possibility that these penalties could adversely affect the stock value of these banks, thereby impacting their overall market capitalisation and financial standing within the industry,” added Morley.
For Oxford Economics senior economist Jee-A van der Linde, effective exchange controls are important in light of the rand manipulation by the banks.
However, overzealous regulatory policies can undermine innovation as well as competitiveness, key developments that can have a bearing on the cost of buying and selling foreign currency.
“What’s more, South African rand’s volatility has received a bad rap, perhaps in most cases rightfully so, but is has also acted as an important automatic stabiliser in times of external shocks.
“Efforts to prevent future manipulation should not hamper the rand’s ability to act as an external buffer,” he said by email.
He agreed with other economists who said that the rand was a highly liquid emerging market currency that was susceptible to massive volatility. The rand’s volatility provided trade professionals from the banks with an opportunity for manipulation.
“When they say banks manipulated the rand, they interfered with the bid, offer and spreads,” wrote one analyst on X.