Had you been a fly on the wall of parliament last week, listening to the discussion about how errant bank traders “rigged the rand”, you’d have flown away quite convinced that your knowledge of economics vastly superseded that of the motley group of assembled politicians.
The fury voiced by the MPs of the standing committee on finance over the “trillions” lost to our economy because of the “rand manipulation” by traders at several banks back in 2013 was alarming, largely because so much has been written and said in the past few days to debunk that specious claim.
As reported in last week’s FM, the total commission made on all the rand/dollar forex deals that take place every day locally would be about R6.5bn — of which all but a fraction would have been legitimate. “Trillions” it most certainly wasn’t.
Yet our MPs, who are paid R1.2m a year to craft policy and know what they’re talking about, evidently didn’t know that.
Grilling the Competition Commission in that committee, the ANC’s Gijimani Skosana said that for six years, those banks “made billions and trillions of rand”. He asked how the fines levied on the banks can be so low, “when you look at the damage this whole thing has done to the economy and to the citizens of this country”.
The EFF’s Mzwanele Manyi beat the same drum. “R1-trillion per day was made by these banks over the past five years. Can you imagine … the kind of numbers we’re dealing with here? And then we have the Competition Commission which is going to come with some lousy R47m or R69m [fine]?”
But the Olympic gold winner was the ANC’s Dorothy Mabiletsa, who said: “Who suffers? Our people. We now have endless poverty in our country, and unemployment, inequality and economic exclusion, because of this thing.”
These traders, she said, do this “every day”. Never mind that the guilty traders aren’t working in those banks any more or, in the case of JPMorgan's former trader Akshay Aiyer, are serving eight months in jail in the US.
Now, Mabiletsa is no greenhorn: besides her experience in project management, she used to be the city of Tshwane’s MMC for finance. She should know finance.
Predictably, the National Treasury officials who had to answer the MPs were nonplussed by the barrage of misdirection.
Boipuso Modise, the Treasury’s deputy director-general, said South Africa’s growth prospects “are significantly and negatively affected” by homegrown constraints, including load-shedding and the logistics snarl-up. In other words, our economy is weak because of structural and policy problems — not rogue traders.
At the end, competition commissioner Doris Tshepe tried to explain that the figure of “trillions” related to the total value of currency traded globally every day, not just these banks, and that not all of this is illicit.
Actually, if you’re looking to quantify exactly how much damage was done to the rand, there is a pointer in the affidavits filed at the Competition Appeal Court by US bank JPMorgan.
The bank said “none of the transactions listed by the commission could be said to be even remotely material, let alone substantial. The largest potential transaction pleaded by the commission between the alleged conspirators is $25m, a transaction that would have constituted 0.0001% of daily trades in the dollar/rand currency pair.”
This, JPMorgan said, could be assumed to be the high-water mark of the commission’s case. And the commission has not presented any evidence to show how this could have had any “direct, substantial or foreseeable effect on the price in the market” on that particular day.
“Furthermore, there is no possibility, prima facie or otherwise, that such a relatively small transaction could have had a substantial effect over a period of six years,” it said.
Given the size of the market, JPMorgan said, the price would have corrected, “immediately, or almost immediately”. There would be no effect, let alone a “lasting effect”, on the exchange rate, the bank argued.
So that’s the reality behind the fictional “trillions”.
Obviously that’s inconvenient for minister in the presidency Khumbudzo Ntshavheni, who argued last week that “the performance of the rand and sometimes the performance of the economy has been manipulated by the private sector, which has no interest in the development of this country.”
This week, she doubled down, writing on BusinessLive that she was merely demanding accountability for private sector corruption. “We don’t even know if the market has recovered from the actions of those banks,” she said.
Actually, we do. Ask pretty much any economist or rand trader. Or ask the Treasury.
Michael Treherne, a portfolio manager at Vestact, says there was “price collusion”, but not “rand manipulation”.
Typically, he says, what happens is that when a company wants to trade currency, it approaches a few banks to get a rate on that deal. That bank will look at the exchange rate, add a mark-up, and provide a quote — usually charging a small margin of 0.5%-2.5% on that trade.
“What happened is that the currency desks of a couple of large international banks allocated each other customers. They did this by having all the banks, except one, charge very high rates. The one bank charging the comparatively lower rate was still charging a higher commission than if the market was competing fairly,” he says.
So individual clients were ripped off, but not the country.
And is our economy weaker because of the “currency rigging” by these banks, he asks rhetorically.
“No, you can thank the ANC and load-shedding for that,” says Treherne. But don’t try telling that to our elected representatives in parliament.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.