The South African financial sector is currently enmeshed in a complex and extensive foreign exchange scandal. Reports have flooded in, suggesting that several global banking institutions are implicated in a widespread conspiracy to manipulate the South African Rand (ZAR).
The Genesis of Allegations
In 2015, the Competition Tribunal initiated a complaint against 28 financial institutions for allegedly being part of a broad foreign exchange rigging conspiracy. The implicated banks, from various jurisdictions including Europe, South Africa, Australia, and the US, are accused of conspiring to manipulate the South African Rand through information sharing on electronic platforms and other coordination strategies while trading in the USD/ZAR currency pair. This manipulation, alleged to have occurred between 2007 and 2013, is believed to have generated about a trillion rand a day for these banks
Standard Chartered Bank’s Settlement
In a significant development, the British multinational bank Standard Chartered has agreed to settle with the Competition Commission, paying R42.7 million. This settlement is a result of the bank’s involvement in fixing and creating fictitious bids and other manipulative activities affecting the dollar-rand exchange rate between 2007 and 2013
Government and Regulatory Response
South Africa’s Cabinet has weighed in on the issue, with Minister in the Presidency Khumbudzo Ntshavheni articulating the government’s stance. The Cabinet views the rand manipulation as part of the private sector’s efforts to destabilize the government. This sentiment comes in the wake of the Competition Commission fining Standard Chartered R42 million for currency manipulation. Ntshavheni emphasized the incident as indicative of the private sector’s lack of interest in the country’s development, accusing them of feeding into a narrative of a collapsing state and economy
Economic Impact and Wider Implications
The manipulation of the rand has far-reaching consequences. From 2006 to 2014, the exchange rate between the US dollar and the South African rand varied significantly, impacting various sectors of the economy. The South African Reserve Bank (Sarb), tasked with ensuring price stability in the rand, along with the Prudential Authority responsible for regulating banks, appears to have been undermined by these activities. Importers, consumers, and the entire debt market in South Africa have faced adverse effects, with consumers bearing the brunt of inflated prices leading to higher interest rates
The Pressure on Banks
Pressure is now mounting on the banks accused of rigging the rand to admit their involvement. This follows Standard Chartered Bank’s admission of participation in the cartel and its intention to cooperate with investigators. Citibank, a few years ago, admitted to its involvement and agreed to pay an administrative penalty of R69.5 million. The spotlight is also on why South African authorities settled for a relatively lower sum of R43 million with Standard Chartered, compared to the half a billion rands settlement the bank made with US authorities for the same matter
Conclusion
The rand manipulation saga has unveiled a complex web of alleged collusions and malpractices within the global banking system, highlighting the need for stricter regulatory oversight and transparency in financial markets. As investigations continue, the implications of this scandal for South Africa’s economy and global financial practices remain a subject of intense scrutiny and debate.
