By: The Maytrix
“Get Rich or Die Trying” 50 Cent the rapper.
“If you aint cheating, you aint trying” a criminal Barclays forex trader once said.
You can fuse the two to arrive at “Cheat or die trying”. Whatever you do, just don’t die ignorant. 50 cents is only half a rand. The analogy resonates with half the explanations given for the rand’s performance, especially when it goes in the wrong direction. A lot of these explanations are aimed at excusing the minister of finance from accountability
The rand is a strange feature of the entire drama. It throws fits at any slight hint of prosecution of the minister. A number of analysts put the rand’s reactions down to market perception. The idea is that market perceptions of a country’s stability are key when it comes to the strength of it’s economy, and it’s currency, by extension. Any hint of potential instability may send negative signals and cause problems. To an extent the value of the rand can be determined using a scientific formula that uses hard-facts. With advanced models, one can account for soft factors such as perception. These can be generally regarded as noise, yet they are measurable. That is why you hear analysts say X currency is under/over-valued. It is because one can estimate the noise levels in the value of a currency.
The South African Reserve Bank positions it’s purpose on foreign exchange trading as follows:
The Bank is responsible, on behalf of the Minister of Finance, for the day-to-day administration of exchange controls in South Africa. Exchange Control Regulations are the legal provisions that limit the extent to which South African residents and companies may transfer funds abroad
Pravin Gordhan as the minister of finance has the South African reserve bank under his control. This empowers him with the authority to decide who can or can’t trade foreign exchange. Pravin Gordhan also has the power to decide how the currency gets traded.
The Minister of Finance has also appointed certain banks to act as Authorised Dealers in foreign exchange. This appointment gives these banks the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department
As per the bank’s January 2016 list on it’s website, all the big banks in South Africa have been appointed as authorized dealers in foreign exchange. Apart from the authorized dealers, only the bureaus are authorized, albeit with limitations, to buy or sell the rand. Neither individual resident nor legal entity may transfer money outside of the country without approval from the bank. Moreover, any transfer of monies to a party outside of the republic has to be reported to the bank. In short, the minister of finance has the power to determine how much of the rand goes in and out of the country.
What the authorized dealers do:
In the business of forex trading, benchmarks are arranged at set times to establish the rate at which a currency is trading. The benchmarks are arranged so as to reflect the market’s “opinion” of the value of any trade-able currency. A very popular benchmark is called the WM Reuters 4pm fix. When the clock hits 4pm, the average of the exchange rate over the 60 second period is used to determine the rate. The 1.15pm ECB fix, unlike the WM Reuters 4pm fix, takes the rate at 1.15pm as the benchmark. Benchmarks are important for clients of foreign exchange traders, banks/authorized dealers in the South African context. The benchmark system is well-meaning and provides buyers and sellers of currency a fair mechanism of establishing price.
As with any system, benchmarks are open to abuse as has been witnessed in the global forex rigging scandal where major banks were fined at least 5.9 billion pounds. This is as fresh in memory as it is rotten in meaning. Traders from the banks involved colluded to stock-pile currencies and flush them at prescribed benchmarks to manipulate them downwards. They did the opposite to manipulate currencies upwards. The ease with which traders could manipulate currencies is compounded by the fact that there is no one global body that oversees forex. All domiciled dealers are subject to their respective local laws. The South African banks involved are regulated by and acting on behalf of the South African Reserve Bank.
We have shown that the minister of finance appoints banks to sell the rand. Banks have demonstrated the will and ability to manipulate currencies. Moreover, we have a finance minister who is evidently under investigation over alleged criminal activity in his previous job at SARS and whenever news of possible prosecution breaks, he is very quick to point to the fact that he has a tough job to do to put our economy right. His defenders and supporters are always quick to point to the potential damage that could ensue as a result of a falling rand, positioning the possible prosecution as harassment. The rand is yet to disappoint in that it always performs according to scripted narrative of prosecution of minister being harmful to the currency.
There is a silent conflict of interest and responsibility on the part of the minister. As an individual with the power to appoint those that sell the currency, it may not be in his best interest to monitor, control and intervene in any possible currency manipulation activity by those he appoints. Naturally, he should be given the benefit of the doubt. Legally, he should be accountable. Historically, the rogue unit saga at SARS is pointed in it’s indictment of how state institutions may veer off their intended national responsibilities. Presently, he is demonstrating an attitude of “Let me do my job” instead of asking me to account for my errors. The brazen arrogance he displays whenever the story of possible prosecution rears it’s corrective head sends chills down my spine. The lack of respect shown for law enforcement in his refusal to cooperate with the Hawks is another red flag that is drowned by the lynch-mob that doesn’t hesitate to ridicule anyone who harbors a different opinion on the matter.