Mail & Guardian reporter, Johannesburg | Friday
A NEW “suspect” – the Reserve Bank, custodian of South Africa’s currency and reserves – is emerging in the quest to understand the rand’s nosedive late last year.
Suspect number one – Deutsche Bank, fingered by South African Chamber of Business CEO Kevin Wakeford in a letter to President Thabo Mbeki in January – has effectively been let off the hook.
After more than six days of testimony and cross-questioning by the Myburgh commissioners and teams of lawyers, it became clear that the deals referred to by Wakeford had nothing to do with the currency’s collapse.
The deals – all asset swaps brokered by Deutsche – took place three to six months before the rand went into a tailspin. The Reserve Bank, despite having concerns about the disclosure of some aspects of the deals, confirmed in testimony this week that the deals had not influenced the currency.
Quite where this leaves Wakeford is not clear – particularly as there is growing speculation that his source may, in fact, have been a trader with one of Deutsche’s international rivals.
The speculation was, ironically, initiated by former Reserve Bank deputy governor James Cross, who was called before the commission on Monday to say whether he was Wakeford’s source.
Cross denied being the source, but shone a torch on an avenue that still needs to be explored in detail by the Myburgh team. He told the commission he had received several calls from one of Deutsche’s competitors towards the end of last year asking probing questions about the asset swaps. Cross was not asked to name the caller or the institution, but there is suspicion in the banking sector that it was a rival bank – and that the source’s motive could have been to bring Deutsche into disrepute, rather than to rescue the currency.
If it emerges that Wakeford blew the whistle on the basis of information from a Deutsche competitor, it could destroy any credibility he may have left. The question will only really be answered if Wakeford names his source or the source comes forward – or if the investigators assisting the commission feel it is worth exploring the source’s identity or motive.
In the meantime, all eyes are firmly on the South African Reserve Bank.
The commission will need to assess whether a statement by governor Tito Mboweni last October triggered the run on the rand in November and December.
Several economists believe it did, and suggested this in presentations to the commission during the first week of its public hearings. The Reserve Bank conceded the announcement – made to a specially convened gathering of bankers engaged in foreign exchange activity – may have played a role.
This possibility was reinforced by some of the South African-based banks called before the commission this week. Absa said Mboweni’s announcement that exchange controls were to be tightened succeeded in driving speculators out of the market – a positive spin-off. But the downside was that the announcement took the guts out of South Africa’s foreign exchange market: transactions dropped from $7,4-billion in October to $5,5-billion in November, and turnover by non-residents in the swap market fell from $3,6-billion to $2,3-billion.
Mboweni’s announcement was followed by a directive in December to foreign exchange dealers asking them to ensure their overseas counter- parts fully understood South African exchange control rules. Dealers were also asked to submit documentation confirming that their trades were backed by real transactions for clients.
Absa group treasurer Petrus Balt told the commission the Reserve Bank’s interventions resulted in a decline in the number of traders dealing directly with local rand dealers and saw turnover fall considerably.
All of this may leave the commissioners wondering: where do we go from here? Do we explore the motives of Wakeford’s source – possibly by grilling Deutsche’s competitors when they take the stand in coming weeks – in an attempt to understand the situation better? Alternatively, will they subpoena Wakeford to name his source and risk the fallout of being seen to persecute whistle-blowers?
If they fail to make a breakthrough soon, the commissioners may have little more to show for their efforts than a broadening of the nation’s economic literacy. Unless, of course, they come out with definitive proof that it was our own central bank that actually triggered the collapse. Such a finding – coupled with questions about the way the head of the country’s chamber of business has handled the situation – could cause untold embarrassment to the government and raise serious questions abroad about the management of South Africa’s economy.