National Treasury Claims Banks' Currency Manipulation Had Limited Impact on Rand

In the wake of substantial developments in the banking sector’s alleged currency manipulation scandal, South Africa's National Treasury has made pointed remarks about the overall impact on the country's economy and currency. The discussion was brought to the fore following a revealing monetary policy committee meeting briefing by Reserve Bank governor, Lesetja Kganyago.

Governor Kganyago emphasized the need for a robust code of conduct within South Africa's foreign exchange market, citing involvement in the global effort led by the Bank of International Settlements to establish such guidelines. The Reserve Bank's role extended beyond advocacy to practical assistance, providing crucial support to the Competition Commission in their legal pursuit against alleged currency manipulation that unfolded between 2007 and 2013.

This controversy resurged into the public eye after Standard Chartered Bank, headquartered in the UK, accepted responsibility for its part in the manipulation of the rand/US dollar exchange rate. This acceptance included a hefty administrative penalty of R42,715,880. Standard Chartered is but one of 28 distinct banking entities facing scrutiny for their participation in tactics suspected of undermining the South African rand's value.

Prominent banks such as HSBC, Merrill Lynch, Citibank, and Barclays, among others, stand accused of leveraging diverse communication platforms—ranging from trading systems to chatrooms and personal meetings—to collude on exchange rates. This admission by Standard Chartered is not the first; Citibank had previously settled similar allegations in 2017.

During a Competition Appeal Court hearing, lawyers representing the banks pushed back against the Commission's jurisdiction, arguing that much of the foreign exchange dealings occurred virtually, outside South African jurisdiction. However, National Treasury pointed out that such actions, if confirmed, would reveal a distressing trend of poor market practices during the period in question.

In response to the scandal, regulations have been proposed under the review of the Financial Market Act Bill and the Conduct of Financial Institutions (COFI) Bill to maintain fairness and prevent misconduct in rate-setting for financial contracts. The Treasury statement also made clear that the alleged collusion among the banks had not contributed to the rand's depreciation since 2013—a decline attributed to shifting global and domestic economic conditions. It specified that the effects of the banks’ manipulative behavior were restricted to individual clients rather than the currency market at large.

This chapter in South Africa's financial history has prompted introspection and a drive towards stringent regulatory mechanisms to preserve market integrity. It remains a stark reminder of the vigilance required to safeguard against malpractice in an increasingly interconnected and digital financial world.