South Africa’s net open foreign currency position (NOFP) has now moved into positive territory following the booking of the proceeds of the government’s â,¬1,25-billion (about R11-billion or $1,4-billion) eurobond issue last week, according to South African Reserve Bank (SARB) Governor Tito Mboweni.
Addressing the Cape Times Breakfast Club in Cape Town on Tuesday, he revealed that, while not knowing the current exact position of the NOFP, it stood at $0,8-billion two weeks ago and is currently “positive”.
“The â,¬1,25 billion euros received from the eurobond was booked against the NOFP last week, so now the NOFP is actually positive,” he announced.
“We can now start building reserves. Now the exchange rate of the rand is no longer a one-way bet — those days are over.”
He added that the move was a very positive one for international sentiment surrounding South Africa.
“The world gives lots of weight to having positive net reserves. Effectively we previously had net negative reserves, so this will help the way investors and others look at South Africa. It also encourages currency traders who are bullish on South Africa.”
The South African government has gradually been reducing the NOFP over the past three years, using offshore proceeds from privatisation and foreign currency borrowings. The NOFP peaked at $23-billion in 1998 as the SARB, under Chris Stals, governor at the time, attempted to defend the rand against speculation. But after the Reserve Bank abandoned this approach in favour of inflation targeting in 1999, the position has gradually improved ever since.
The presence of a negative net open foreign currency position (and net negative foreign reserve position), combined with the SARB’s stated policy of not defending the currency, meant that in general currency speculators would be correct to bet that the rand would depreciate against the world’s major currencies in times of turbulence. This gave the local currency a reputation as a “one-way bet”. ‒ I-Net Bridge