S. Africa Limits Short Selling ... C'mon America Catch Up!!!
S. Africa to Enforce Rand Laws, Stop Buying Dollars (Update1)
S. Africa to Enforce Rand Laws, Stop Buying Dollars (Update1)
(Adds analyst comment in fourth paragraph; more from
government officials in seventh, ninth and 11th.)
Pretoria, South Africa, Oct. 14 (Bloomberg) -- South Africa's
central bank plans to enforce laws more tightly to limit declines
in the rand. The government also will stop buying dollars to
reduce foreign debt to try to raise the currency's value.
The announcements by Tito Mboweni, the governor of the
Reserve Bank of South Africa, follow a drop of as much as 19
percent in the rand against the U.S dollar. The rand plunged this
year to a record 9.385 to the dollar and was at 9.147 on Friday.
Mboweni is trying to shore up the currency of Africa's
biggest economy as rising import prices threaten to push annual
inflation above the government's target range of 3 percent to 6
percent set for the end of next year.
``It's long overdue and I'm surprised they waited so long,''
said Colen Garrow, an economist at ABN Amro in Johannesburg.
The fall of the rand accelerated after the Sept. 11 terrorist
attacks in the U.S. prompted investors to sell emerging market
assets in favor of more stable currencies and assets.
The government's attempts to reduce its foreign debt -- known
as the net open forward position, or NOFP -- weakened the rand as
officials bought dollars. The debt, now at $4.8 billion, is being
paid by proceeds from the sale of state assets and from government
borrowing outside South Africa, the statement said.
The NOFP has been reduced from $23.2 billion at the end of
September 1998. Its current level, as a percentage of gross
domestic product, is in line with those of some of the world's
strongest economies, Mboweni said.
Limiting Short-Selling
The NOFP is from the apartheid years when the central bank
lent South African companies foreign currency at pre-set exchange
rates because they were unable to borrow abroad. The debt grew as
the currency dropped from less than 1 rand per dollar in 1981 to
about 3.5 when Nelson Mandela became president after the country's
first all-race elections.
Information about the NOFP figure and the government's so-
called forward book will no longer be published each month in the
form of a special report, Mboweni said. It will instead be updated
on a monthly basis on the bank's Web site.
Enforcing currency laws may have a more immediate effect on
boosting the rand than abandoning the practice of buying dollars
to lower the debt, analysts said.
Banks trading the rand may now be compelled to prove their
transactions cover a real trade of goods or services rather than
speculation. While these laws are already in place they have not
been enforced.
The laws weren't stringently enforced ``because of the
lighter spirit'' South Africa adopted when the government opened
its markets in 1994 at the end of apartheid, said Alick Bruce-
Brand, head of exchange control at the central bank, in an
interview.
Tougher scrutiny may mean some banks, which sold rand they
didn't own betting the currency would fall, may have to buy rand
to close the positions. This could lead to a strengthening in the
currency in coming days, Garrow said.
``The enforcement of existing rules serves to ensure that
only legitimate transactions take place in the foreign exchange
market,'' Mboweni said. ``The financing of short rand positions in
the domestic markets'' is prohibited.
``The Reserve Bank stands ready to take appropriate steps
against trading activities inconsistent with existing rules and
regulations,'' he said.
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C"mon America stop the theft ....
P2bAAAT & DSAS |
