Exchange controls ‘to be relaxed gradually’

The National Treasury is unlikely to deviate from the path it has pursued since 1995, one of gradually dismantling exchange controls in a phased and responsible manner, despite speculation that the government may opt for a “big bang” approach to lifting remaining exchange-control regulations, Brait economist Colen Garrow said on Friday.

“While an environment in which the rand remains strong is always appropriate for something more creative, the National Treasury is unlikely to deviate from its consistent path of removing exchange controls gradually,” Garrow said.

The gradual process of removing the regulations, which govern the mobility of capital in South Africa, began in 1995 with the removal of the two-tier rand system.

This consisted of a financial rand, which dealt with flows of a capital nature, and a commercial rand, which handled trade-related demand for foreign currency.


Restrictions on investment outflows by domestic companies have been lifted, with the proviso, however, that these need to be approved by the South African Reserve Bank.

“Another issue which is expected to attract scrutiny is the ceiling on private foreign-currency accounts. The argument is that the amnesty process may be concluded, but that it still allows South Africans who took funds illegally offshore, in contravention of tax and foreign-exchange regulations, to hold such funds in exchange for payment of prescribed levies,” he said.

“In such instances, funds held offshore may potentially exceed the R750 000 ceiling, which limits the amount of funds which may be taken offshore via the vehicle of private foreign-currency accounts. The situation, as it is, is thus inequitable and will have to be addressed by government at some stage,” Garrow said.

Finally, Garrow said it is unlikely that the 180-day period during which exporters must convert their foreign-currency earnings into local currency will be scrapped.

Exporters may hold their export receipts in foreign-currency denominated accounts called F178 accounts. The maximum period they may hold their export receipts has varied from seven days under the apartheid regime from 1985 to 1995, to 30 days from 1995 to March 1998. It is currently 180 days.

In 2001, exporters correctly anticipated the weakness in the rand in the fourth quarter after the events of September 11 2001 caused a slowdown in global growth and thereby reduced commodity prices. Then they doubled their remittance period from 60 days in October 2001 to 120 days in November 2001 and this reached a record 147 days in March 2002, but exporters helped the rand’s recovery in April 2002, when they almost halved their remittance period to 79 days.

In a manner similar to the bond market, it is impossible to say what the cause is and what the effect is. What is visible is that as the rand weakens, so exporters generally speaking lengthen their remittance period. The reverse holds true as well, and current estimates are that the remittance period is less than 45 days. — I-Net Bridge

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Advertising

Subscribers only

Matrics fail at critical subjects

The basic education minister talks of quality passes achieved by the class of 2020, but a closer look at the results tells a different story

‘Captured’ water utility exec holes up

Thami Hlongwa seems to be in hiding after a blacklisted technology company scored millions from Umgeni Water and the owner was murdered

More top stories

Sisulu dissolves housing agency board, again

The HDA is once again under administration, and its acting chief executive gets to stay on

Pangolins pushed to the brink of extinction

The trafficking of scales is no longer a ‘niche’ criminal activity, but a serious and organised crime that threatens to make all eight species extinct within 20 years

Durban residents want answers after refinery emission

People living near the refinery were subjected to two hours of dirty smoke from the refinery, the South Durban Environmental Alliance said on Saturday.

Parents ‘key to best grade 12 results’

For the past four years, the matric results in Tshwane South has been the leading district in Gauteng. The formula to success has been involving the parents
Advertising

press releases

Loading latest Press Releases…