Minister of Finance Trevor Manuel has taken a cautious stance on what he termed growing imbalances in world markets, noting that South Africa’s rand currency saw “a lot of movement” in one day on Monday.
Speaking to MPs serving on the National Assembly finance portfolio committee — during the National Treasury budget vote briefing — he referred to the growing balance of payments deficits of oil-importing states, while oil-exporting states are countries “making money hands over fist”.
He told MPs worried about balance of payments deficits: “What we can and must say … [South Africa’s] fiscal management, monetary policy management and in general the [internal] balances are very strong.
“There will be a tendency to overshoot in some parts. If you only observe what happened in the rand in the past week, yesterday [Monday] morning it went right to R6,62 and closed at R6,40 [to the dollar].
“That is a lot of movement in a single day … You have seen well-managed countries … like Iceland and New Zealand … taking huge hits in the last while.
“There is a concern within the multilateral arena about the costs of these rapid adjustments. We monitor this on a daily basis. I don’t think anyone in the Treasury is in a position of panic about this. We are reasonably on top of this situation of all of the trends.”
Noting that former US Federal Reserve chief Alan Greenspan had commented that when one has as much exuberance in the market “irrationality becomes the order of the day”, Manuel said that if one had bought two stocks — which he left unnamed — in South Africa five months ago, one could have taken the money out with a 60% return last week.
Noting that the rand has tracked the Canadian, New Zealand and Australian currencies in recent years — except for 2001 — he referred to the imbalances in the world economy with China sitting on a current-account surplus of about $150-billion and reserves of about $750-billion.
“Large chunks of China’s reserves are in the United States,” he noted, such as in US treasuries, while the US has a current-account deficit of about $800-billion.
“China has no interest in seeing the depreciation of the dollar,” he noted, but added that there is a “lot of surplus savings sloshing around … it can turn on a tickey”. — I-Net Bridge