Gordhan: SA cannot go it alone on currency

SA could not solve the problem of a rapidly appreciating currency on its own, Finance Minister Pravin Gordhan warned yesterday, in a pointed rebuff of calls for unilateral action to curb the rise in the rand.

And he warned that unless a global solution was found to the problem of appreciating emerging-market currencies, the world’s economy could be plunged into a “currency war”.

As the rand reached a new two- and-a-half-year high at R6,76/$ yesterday, Mr Gordhan said SA’s “mining, agricultural and manufacturing sectors are all finding themselves in serious trouble”.


“We are rendering that part of our economy uncompetitive. You have got to find a balance.”

His rejection of unilateral action was a rebuttal of demands by the African National Congress’s allies in the Congress of South African Trade Unions and the South African Communist Party for the government to take urgent action to weaken the rand, for example by a tax on short-term speculative capital inflows.

The currencies of emerging countries have all suffered from appreciation over the past few months as capital from the low- growth developed world has sought higher returns in more robust developing economies.

This has reduced the competitiveness of their exports and posed a risk to balanced growth, Gordhan said in a briefing to a joint meeting of Parliament’s two finance committees.

With benchmark interest rates of 0,1% in Japan and 0,25% in the US, investors are borrowing cheaply and investing in markets offering higher returns.

Earlier this week, Reserve Bank governor Gill Marcus made a similar point, saying there is “no disagreement that the rand is overvalued. The question is what to do about it.”

Gordhan warned against SA trying to go it alone.

“What we need to appreciate better in SA is that while there are some country-specific trends that give rise to the capital flows we have seen, there are a wider set of structural problems in the world (which) won’t be solved by unilateral actions by a few countries on a disparate uncoordinated basis on their own,” he said.

Gordhan warned that unless the Group of 20 nations took the responsibility of getting the major players to get around the table to find a global structural solution in a “spirit of generosity and give and take”, the world was heading for a currency war, in which nations tried to depreciate their currencies and export their way out of trouble.

The rise in emerging market currencies also dominated discussions at the recent meetings of the International Monetary Fund and World Bank in Washington.

Source: Business Day