Rand manipulation threatens financial stability

The manipulation of the rand exchange rate by commercial banks in South Africa, to which the Namibian dollar is pegged, could have serious implications on the stability of the domestic financial system.Fin24 reported that British multi-national bank Standard Chartered has admitted to its role in manipulating the dollar-rand exchange rate and has agreed to pay an administrative penalty of R42.7 million, ending roughly eight years of litigation with South Africa's competition authorities.This comes after the London-headquartered lender reached a settlement with the Competition Commission and admitted its role in fixing bid, offers, bid-offer spreads as well as other activities aimed at manipulating the dollar-rand exchange rate.The Competition Commission said that Standard Chartered had also participated in dividing markets by allocating customers in terms of which one trader withholds or pulls an existing bid or offer from the market to allow another trader to execute and complete a separate trade.RisksResponding to a Market Watch enquiry, Bank of Namibia’s (BoN’s) spokesperson Kazembire Zemburuka noted that exchange rate manipulation can have a significant adverse effect on financial stability, trade relations, market confidence and economic growth. The manipulation of any currency often allows the perpetrators the opportunity to harvest unfair profits to the detriment of the citizens, public and corporate sectors. Manipulation further alters the normal functioning of currency markets, making it even more challenging to forecast foreign exchange movements for the purpose of business planning and trade.Furthermore, manipulation has potential to interfere with monetary policy implementation, as the impacts are transmitted through the inflation pass through channel albeit indirectly in the case of Namibia, he added.The loopholes which gave rise to such malpractices have subsequently been closed. The Bank of Namibia believes it is such swift actions that will continue to maintain and restore public confidence in the functioning of the currency markets, and the financial sector as a whole, Zemburaka said.Namibian Sun recently reported that Namibia has no immediate plans to delink its currency from the South African rand, as this would have a devastating impact on the domestic economy. –phillep@nmh.com.na

Rand manipulation threatens financial stability

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