The Rand Scandal: Time to Overhaul South Africa’s Financial System

Recent revelations about the manipulation of the South African rand by certain local and foreign banks have sent shockwaves through the nation, bringing into sharp focus the essential role that trust and integrity play in the financial sector. While the imposed fines and the damage to the economy are crucial topics of conversation, what lies beneath the surface are matters of policy and the silent response that has emanated from South Africa's economic custodians — the Treasury and the South African Reserve Bank (SARB).

At the heart of the debate is a pressing question: How do current macroeconomic policies serve the country's interests, including the goal of equitable development? Banking, as a public good, implies a responsibility of the state to ensure its benefits are equitably distributed without prejudice, including safeguarding the currency. The SARB, mandated by the state, must defend the value of the rand. But when private banking institutions, licensed by the state, engage in practices contrary to the public good, particularly currency manipulation, it points to a flagrant misuse of their given positions and a violation of public trust.

Considering the banking sector's inherent public backing, the impunity with which banks can privatize rewards while socializing losses raises profound questions about the level of oversight and accountability enforced by the state. The silence from both the SARB and the Treasury on the rand manipulation scandal starkly contrasts with this expectation of accountability.

The problem can partly be attributed to a pervasive lack of understanding of money and banking by economists and the general public alike. Consequently, the notion that banking is a public good is lost, especially among those indoctrinated in neoclassical economics, many of whom populate government institutions and influence policy. The policies of the late 1990s and early 2000s, including GEAR and inflation targeting, failed to anticipate the warning signs of the 2001 currency manipulation and have largely remained unchanged.

Moreover, the SARB's promotion of the myth that the country requires savings for investment and growth has led to the liberalization of the capital account and the opening to hot money flows, which further exacerbates the risk of currency manipulation. Despite the offshore foreign exchange market's noted influence on exchange rates and the acknowledged difficulties in monitoring such activities, there is a distinct lack of initiative to reel in these markets for more effective oversight or use domestic firms to increase surveillance capabilities.

The SARB's position that the Department of Trade and Industry’s Competition Commission is the sole authority to investigate collusion is insufficient. The SARB, with access to vital market data, should be more proactive. South Africans deserve to know what measures have been implemented to protect the rand since the 2001 incident and subsequent manipulations.

The ANC secretary-general has called on the Treasury to provide clarity on the issue, emphasizing the need for transparency while legal proceedings are ongoing. The suggestion of a review of banking licenses to ensure compliance with their roles as public goods may be necessary.

With the overarching theme that money and banking are public goods, a systemic overhaul of the financial system in South Africa appears to be not only justifiable but imperative. The manipulation scandal could be the catalyst needed to revamp the financial system and replace the outdated macroeconomic policy influenced by international institutions.

The discourse around the nationalization of the SARB, often marred by misinformation and driven by neocolonial interests, overlooks the potential for monetary independence and the positive reforms it could engender for South Africa. As the country stands on the cusp of potential financial reform, the people of South Africa wait with bated breath for a comprehensive briefing from both the SARB and the Treasury.