Rand manipulators grow fat, while consumers pay the price

MANIPULATING MARKETS: Seventeen banks are accused of creating fictitious bids and offers to distort demand and supply in order to increase profits.

Manipulation of the rand is not new. A similar practice occurred in 2001, when former SA Chamber of Business (Sacob) CEO Kevin Wakeford, now the CEO of Armscor, blew the whistle on three firms and a global bank for being party to manipulation in the currency markets.

The manipulation caused the rand to depreciate by more than 42% – and reach its lowest value ever at that time of R13.84/$. This from a healthy R7.60/$ on December 21, 2001.

According to the commission, the forex exchange on a daily basis is calculated at about $50m (R647m) given the current exchange rate. Further, the annual real GDP growth for 2001 was 2.7%, compared to 4.7% growth the previous year when the rand was strong.

In 1994, when the rand was about R3/$, GDP growth reached a historic high of 7.6% a year in December of that year.

According to investigative journalist the late Barry Sergeant in his book, The Assault on the Rand, when the rand collapsed from R7.60/$ to R13.84/$ in 2001, Wakeford predicted that the rand was on its way to 20, 30, 40 and possibly even 50 to the dollar.

This would have thrown the sevenyear-old democracy into economic and political turmoil. As a result of his intervention, the Rand Commission was set up by then president Thabo Mbeki to investigate the claims. The rand’s collapse was arrested and reversed.

The Rand Commission was however shut down prematurely and Wakeford was fired as CEO of Sacob.

While the Enron and WorldCom scandals in the US triggered comprehensive corporate reform, it seemed that South African authorities were determined to cover up any wrongdoing.

The fall of the rand as a result of manipulation translated into a rise in the petrol price at the time and impacted negatively on inflation. The price of a litre of petrol was under R5 but ended up rising to more than R6 a litre, triggering a spike in inflation in mid 2002 and by the end of December 2002 it was at a staggering 13%, compared to 4.6% the same period in 2001.

“This practice of manipulating the rand has dealt a major blow to poor South Africans because higher import prices put up fuel prices and household goods become more expensive,” independent economist Tshepo Kgadima said on Thursday.

“The charge of currency manipulation by 17 banks confirms what many of us have been saying, that banking institutions are more dangerous than standing armies.”

The ANC on Thursday called for stiff sanctions against the banks accused of rigging the currency, piling political pressure on the lenders.

South Africa’s banking index fell 1% yesterday after the Competition Commission, which has been conducting a probe into the matter since April 2015, recommended heavy fines be imposed on the lenders. But the rand, which surprised on the upside this week, continued outsmarting major currencies by retaining its 12-month high against the US dollar.

It is now trading between the range of R12.85/$ and R13.01/$. The ANC says it “takes an extremely dim view of the activities of the listed banks”. “These acts of corruption have crudely exposed the ethical crisis in the South African banking sector.

“It is further indication of how the markets are and can be manipulated by dominant oligopolies to cripple its functioning to suit their nefarious agendas.”

Financial regulators are clamping down worldwide, with dozens of traders fired and big banks fined around $10bn in separate cases for rigging the level of the Libor interest rates and other market benchmarks.

The DA accused the ANC of politicising the issue, saying ministers want “to do battle with the banks, regardless of the economic fallout”.

Bernard Sathekge