STUART GRAHAM, Johannesburg | Wednesday
IT was not likely that individuals and financial organisations would influence the exchange rate of the rand, the commission of inquiry into the rapid depreciation of the currency heard on Wednesday.
Retired SA Reserve Bank governor Chris Stals told the commission he did not think any large corporate organisations would expose themselves to anything illegal or unethical, while individuals would have to make ”quite a big” transaction to influence the exchange rate.
”Of course investors and speculators wanted to make the most of last year’s volatile situation and increase their income, but to test that in a court would be very difficult,” Stals said.
He said the commission would probably find suspicious, but even if they managed to track these down, it would be very difficult to prove that anything illegal had transpired.
Asked by assistant commissioner Christine Qunta if he could recall if the currency had ever lost 40% in one year, Stals said the worst he remembered was 20% when South Africa was affected by the east Asian financial crisis.
”What I fear is that we experience even greater volatility in the future.”
Stals said the depreciation of the rand in 2001 could be explained in terms of the macroeconomic environment and market developments.
He said that in the second half of 2001 various adverse external and domestic developments led to the deterioration in the South African balance of payments and, therefore, to a decline in the supply of foreign exchange.
”Without any official support, shortages developed in the market for foreign exchange with a strong concurrent pressure on the rand to depreciate.”
”There was a growing perception in the market that the rand would continue to depreciate. Protective action by importers and expedient conduct by exporters squeezed the market even further.
”In December there were signs of panic in the market because of the shortage of liquidity.”
Stals said in terms of the ”Staircase Theory” a theory that the rand stays stable for two years before deteriorating the rand was in the middle of 2001 ready for a new ”run down the next flight of stairs”.
”From the experience of the past 20 years the deduction can be made that the nominal exchange rate of the rand against other currencies will over time depreciate more or less by the inflation differential between South Africa and its major trading partners. ”This depreciation does not follow a straight-line path, but rather a stair-case adjustment process.”
Stals said periodic adjustments to a new level in the past often led to an over-reaction in the market, with a subsequent consolidation period.
He said that in the past two decades of globalisation had led to an integration of financial markets on a worldwide basis and South Africa participated in these developments and removed or relaxed exchange controls ”to an important extent”.
These developments had contributed to a more volatile exchange rate for the rand.
The reduction in the net open foreign position (NOFP) of the SARB last year may also have contributed to the woes of the rand, but this reason had also been exaggerated in the media and in the market.
”As long as the SARB enters into forward foreign exchange cover transaction for South African residents in respect of firm ascertained and documented commitments, increases or declines in the bank’s NOFP will be neutral as far as supply and demand conditions are concerned in both the markets for foreign exchange and for domestic rand liquidity.”
Stals said the attacks on the United States on September 11 and adverse developments on the African continent, particularly South Africa’s neighbours, had created nervousness among international fund managers and had contributed to a reduction in the inflow of foreign capital to the country.
The commission, headed by Advocate John Myburgh, is being held 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 last year. Mbeki has appointed commissioners Mandla Gantsho and Qunta to assist Myburgh. – Sapa