Johannesburg | Monday
THE SA Reserve Bank (SARB) was not able to isolate any transaction which caused or contributed to the rapid fall of the rand in 2001, the commission of inquiry into the depreciation of the currency heard on Monday.
The general manager of the SARB’s foreign exchange department, Alexander Bruce-Brand, told the commission that from January 1 to December 31, 2001, approximately 5,6-million transactions were reported to the bank’s exchange control department (ECD).
”Of these approximately 36 000 were dealt with by the ECD and the balance were dealt with by authorised dealers, as these fell within the ambit of the exchange control rulings and therefore did not require prior approval of the ECD,” Bruce-Brand said.
”Numerous economic and political factors, which the commission has already heard influence the exchange rate of the rand, would also make this task even more difficult for me.”
Bruce-Brand said the bank had expressed its concern — in a statement by SARB governor Tito Mboweni on October 12 last year — about the volatility in the domestic foreign exchange market.
”It was felt appropriate to enforce existing exchange controls on non-resident to ensure that only legitimate transactions take place in the foreign exchange market.”
The SARB has been criticised by witnesses at the commission for ”helping” the rand to slide.
Econometrix chief economist Azar Jammine told the commission last week that Mboweni’s frequent statements that the bank would not intervene in foreign exchange markets to support the rand helped the currency drop.
He said under Mboweni’s governorship the SARB was obliged and willing to follow the government’s policy of inflation targeting, which meant the bank no longer had any interest in managing the level of the exchange rate.
This, combined with the low level of reserves and the commitment to eliminating the net open foreign position (NOFP), led speculators to believe there was little risk in taking a position against the rand, Jammine said.
Another possible explanation for the rand’s depreciation gaining so much momentum in the final months of 2001 was the SARB’s ruling on October 14 that currency traders give concrete proof of the assets involved in every currency transaction they performed.
This, according to Jammine, is said to have dried up liquidity and made the market much more vulnerable to big moves. The traditional short-covering by speculators that usually followed a sharp downward movement was no longer present to instil some recovery.
Market analyst George Glynos told the commission that one of the factors that helped the rand fall was the SARB’s determination to reduce the NOFP as soon as possible.
He said the result was the SARB was not allowing any foreign currency flows into the market, and would do little to actively intervene and stop the currency’s slide.
Speculators knew there was no danger of intervention and the SARB through its aggressive reduction of the NOFP would indirectly help their cause, Glynos said.
The commission, headed by Advocate John Myburgh, is holding its hearings in Sandton and is expected to run until March 15.
It was set up by President Thabo Mbeki after SA Chamber of Business chief executive Kevin Wakeford sent him a letter saying the rapid depreciation of the rand at the end of last year was suspicious.
Wakeford said individuals and institutions had enriched themselves at the currency’s expense after the rand hit record lows against major currencies in December. – Sapa