SACP Political Bureau calls for stronger action to clamp down on currency exchange rate manipulation
Saturday, 25 November 2023:- The South African Communist Party Central Committee Political Bureau met on Friday, 24 November 2023. The highest decision-making body of the SACP in between the Party’s Central Committee plenaries has called on the government to move South Africa beyond fines—to prosecute those manipulating our currency exchange rate by treating their conduct for what it is: corruption, a criminal offence, an act of economic sabotage, and a regime change conduct.
Let us recall. Back in 2015, the Competition Commission initiated an investigation into 28 banks for manipulating the Rand from 2007 to 2013. The Commission recommended fines equivalent to 10 per cent of the banks’ annual turnover.
Among the implicated banks were both local and foreign-controlled multinational banks. They included Barclays Plc, Macquarie Group Ltd., Nomura Holdings Inc., Standard Bank Group Ltd., Bank of America Corp., JPMorgan Chase & Co., HSBC Holdings Plc, Credit Suisse Group AG, Commerzbank AG, BNP Paribas SA, Investec Ltd., and Australia & New Zealand Banking Group Ltd.
The recent developments, including the Competition Appeal Court ruling and the subsequent filing of a new charge sheet in 2020 by the Competition Commission against the 28 banks, underscore the urgency and importance of punishing currency manipulation as corruption, a criminal offence and economic sabotage. The commission’s new referral expanded the scope to include additional banks, notably the Nedbank Group, Rand Merchant Bank, and Standard Americas Inc.
Standard Chartered Bank, a British controlled multinational, has admitted liability for manipulating the Dollar-Rand pair and agreed to pay an administrative penalty of approximately R43 million. In 2017, Citibank, an American controlled multinational, paid a fine of R70 million.
Compared to the damage caused, the fines could be a pittance. This is one of the reasons the SACP, beyond the fines, is calling for currency manipulation to be treated and prosecuted for what it is.
Currency manipulation, as it succeeded for six years from 2007 to 2013 as the case in point, among others, calls for strong actions, such as regulatory and monetary policy measures, including exchange rate controls, to prevent such corruption, crime, and economic sabotage. In addition, South Africa needs tight regulation of its capital account and stronger legislative measures to clamp down on illicit capital flows.
After a currency attack occurs, individuals commonly referred to as economic experts emerge across various media platforms—such as radio, television, electronic outlets, and print publications—offering completely unrelated explanations for its depreciation. They mostly blame the government, with far-reaching implications for the governing party. The implications include loss of electoral support, starting within the category of unsuspecting minds who believe such “expert” explanations.
The damage caused by currency manipulation is long-lasting. While the Competition Commission is well versed in quantifying various impacts of currency manipulation, we must highlight a number of those impacts, which it must take into account. The impacts include economic, financial and national revenue losses, which occur mainly because of currency devaluation.
Especially when a country’s currency is attacked, its sudden and significant depreciation immediately leads to imported goods, such as oil, becoming more expensive. This contributes to inflation, as the cost of goods and services rises, impacting the purchasing power of consumers, with greater impact on the workers and poor. Rising prices, along with high unemployment and poverty, are conducive conditions for political unrest.
Also, as we have seen, the Reserve Bank, following the narrow policy of inflation targeting, raises interest rates when that happens. Higher interest rates contribute to a slowdown in economic growth by making borrowing or the cost of capital more expensive for consumers and enterprises, with co-operatives and SMEs usually the most impacted enterprises.
South Africa has had most of its debt denominated in Rand. But, and to which the SACP is averse, the National Treasury is more and more displaying an increased appetite for foreign currency denominated debt accumulation. This exposes South Africa to the risks of currency exchange rate devaluation.
Through exchange rate devaluation, a currency attack increases the real cost of servicing foreign currency denominated debt, leading to a higher debt burden for the country. Among others, we have seen the National Treasury, through the Medium-Term Budget Policy Statements and Annual Budgets, pursuing a fiscal stance we are opposed to—austerity under the notions of fiscal consolidation and “fiscal discipline” and reducing the debt-to-GDP ratio. Austerity has negatively impacted growth and development, including infrastructure development and industrialisation, which has, for many years now, been overpowered by de-industrialisation.
Successful currency attacks cause a loss of confidence in the country’s currency and financial stability, engendering capital flight. This compounds the economic challenges the country faces. Economic destabilisation resulting among others from a currency attack negatively impacts the economy, contributing to retrenchments and sustaining high unemployment.
A sharp depreciation in the currency affects the country’s trade balance. While it may make exports cheaper and more competitive, it also makes imports more expensive, potentially widening the trade deficit and becoming a balance of payments problem.
Statement issued by the SACP, 25 November 2023
