Kganyago throws dust on the competition authorities on rand manipulation

Lesetja Kganyago, the governor of the South African Reserve Bank. File

Lesetja Kganyago, the governor of the South African Reserve Bank. File

Published Mar 14, 2024


Public trust in South Africa’s banking sector was not as deep as it should be, said South African Reserve Bank (SARB) Governor Lesetja Kganyago, giving a keynote speech at a conference of the Financial Sector Conduct Authority (FSCA) yesterday.

Kganyago yesterday raised dust over the issue of rand manipulation after appearing to take a step away from the Competition Commission’s work to get to the bottom of the saga through an appeal at the Constitutional Court.

He said: “It was remarkable, with the allegations last year about banks manipulating the exchange rate of the rand, how ready people were to believe that there was in fact a giant conspiracy to rig the rand, and that this had seriously weakened the exchange rate, pushed up inflation and raised interest rates.

“Economists and market specialists understood that even if there had been market manipulation by some traders, the macro effects of the exchange rate being a few cents weaker or stronger for an hour or so would have been trivial. The impact on inflation and rates would have been zero,” he said.

He said the Competition Appeal Court had dismissed the rand manipulation case while there had been no evidence of rand manipulation.

“We also saw the Competition Appeal Court (CAC) rule in January that there was no evidence of a general conspiracy. But this was not the conversation taking place in the public domain. Most people could tell that traders were behaving unethically, plotting in chat rooms, and this misconduct was so obviously wrong, it eclipsed further analysis.

“What I learnt from this is that public trust in the financial system is not as deep as it needs to be. I worry about our ability to have well-informed policy conversations, in potentially more stressful circumstances, if bad analysis can get this kind of public reaction,” he said.

Kganyago failed to mention that the Competition Commission had taken its application to the Constitutional Court for leave to appeal the decision by the CAC.

The matter dates back to 2015 against 28 banks, including the big local banks and many other international banks, alleging that these groups colluded with each other to fix the foreign exchange rate in respect of the US dollar and the South African rand currency.

Some banks, such as Standard Chartered, have already paid settlement fines over this with the Competition Commission and agreed to provide evidence implicating other banks.

The Commission has also insisted that it was not making up the case, but that the banks had a case to answer as it had set out facts the banks needed to respond to.

One highly placed source, who declined to be named, said yesterday Kganyago’s rand stance was undermining the SARB’s mandate to protect the rand.

He further said the central bank chief was undermining the Competition Commission by taking an outright stance, which puts him against efforts to nail down wrongdoing and collusion acts by banks in currency trading.

“The governor is also undermining the efforts of the US authorities to prosecute those involved in rand manipulation.

“To say that the banks were not necessarily involved is to undermine national institutions. By downplaying the effect of the rand manipulation by the governor is very unfortunate; he should have keep quiet because right now the reserve bank and the Commission should be co-operating as the issue goes to the Constitutional Court,” the source said.

Kganyago also said many South Africans now have “strong opinions on the ethical questions and especially ethical failures” stemming from the rand manipulation allegations against banks.

“This is the stuff that can catch fire. We need to have a financial system that treats people fairly; where misdeeds are detected and dealt with promptly and effectively,” he explained.

Apart from this, South Africa was going through “challenging times” with the region – though peaceful – not completely “insulated from geopolitical crisis” which has pushed up business costs as ships have to take longer routes, while supply of key raw materials from regions in crisis has been crippled.

“Our economy is not growing and there are many signs that our living standards are falling.

“Growth last year was 0.6%. The gap between SA growth and world growth is now double its longer term average; we are falling behind,” said Kganyago.

He added: “The big reason for this is that other places have functioning rail networks, ports and electricity, something that we lack. At the same time government debt has risen too fast and is now too higher. We have lost our sovereign investment credit rating.”

Meanwhile, Unathi Kamlana, the commissioner for FSCA, said South African consumers were currently struggling to cope with high debt levels, elevated inflation and high interest rates.

He explained that there were collaborative government efforts on addressing South Africa’s greylisting.

“Many households are struggling to cope with rising cost of basic necessities (and) fact that SA households have high levels of debt. If you have situation we have of high interest rates and high inflation, we need to think how they affect business models and the FSCA,” said Kamlana.