Eswatini feels ripple effects of Rand manipulation case

By Delisa Magagula

Eswatini’s currency and economy continue to feel indirect pressure from developments in South Africa’s ongoing rand-manipulation case, which alleges that 28 local and international banks colluded to fix the dollar–rand exchange rate between 2007 and 2013.

Since the Lilangeni is pegged one-to-one with the South African rand under the Common Monetary Area, any fluctuation or distortion in the rand directly impacts Eswatini’s economy affecting import costs, inflation and currency stability.

Minister of Finance Neal Rijkenberg confirmed that the country is closely watching the outcome of the case, saying Eswatini is going to feel the effect.

“We are highly monitoring this, waiting for conclusions, but the ripple effects are there and could be there since Eswatini is pegged to the rand. We will, or are, feeling the heat, said the Minister.

Worth noting is that, the South African Competition Commission has accused 28 banks of manipulating the rand–dollar exchange rate between 2007 and 2013.

The Commission claims that traders coordinated bids, offers and spreads in private chatrooms to influence the rate, effectively making the dollar more expensive.

The case, which began in 2017, has been through several legal rounds. Early this year, the Competition Appeal Court dismissed parts of the Commission’s case, ruling that the regulator had not proven jurisdiction over some foreign banks.

However, the Commission has now taken the matter to the Constitutional Court, arguing that South Africa’s financial system was affected and that the case must be heard in full.

The accused banks, which include several global institutions, have consistently denied wrongdoing. The Constitutional Court’s decision will determine whether the case proceeds to a full trial.

Economists say that because Eswatini’s lilangeni moves in lockstep with the rand, any manipulation that weakened the South African currency during that period would have spilt over to Eswatini.

Currency analyst Mxolisi Dlamini said that during the alleged period of manipulation, the rand’s volatility led to costlier imports and contributed to inflationary pressure in Eswatini.

“When the rand weakens against the dollar, Eswatini feels it almost immediately. Fuel, machinery, and food imports are priced in foreign currency. So if the dollar was artificially inflated, local prices went up too, even if temporarily,” he said.

The peg arrangement means Eswatini cannot adjust its exchange rate to cushion itself. Instead, any shock to the rand whether market-driven or manipulated is automatically transmitted to the lilangeni.

According to the Central Bank of Eswatini, this dependency makes the country’s price levels highly sensitive to developments in South Africa’s economy, including inflation, fuel prices and currency movements.

Economist Nkosinathi Khumalo noted that the manipulation period coincided with years of sharp depreciation in the rand, from around R7 to nearly R11 against the dollar.

“When the dollar gets stronger, Eswatini pays more for imported goods and services. The period between 2007 and 2013 saw imported inflation climb, even when domestic production remained stable,” he said.

As of this week, the rand is trading at around R17.30 to the US dollar, a rate mirrored by the lilangeni. The current exchange level is seen as stable, but the historical effects of the manipulation if proven could mean the region’s currencies were weaker than they should have been for several years.

Economic trends analyst Sindi Nkambule said that while Eswatini has maintained strong fiscal management, it remains vulnerable to South African market shocks.

“We depend heavily on South African imports, and our currency is tied to theirs. So when something disturbs their market even years later we feel the aftershocks through prices, reserves, and consumer costs,” she said.

Minister Rijkenberg said Eswatini is taking precautions to protect its economy from external currency shocks by maintaining healthy reserves and fiscal discipline.

The Central Bank continues to monitor developments in South Africa’s financial sector and international exchange markets.

“We are aware of the situation and its potential implications. Our focus is on maintaining stability and ensuring Eswatini’s economy remains insulated as far as possible,” said Rijkenberg.

However, analysts caution that Eswatini’s options are limited because the peg to the rand is essential for trade and monetary stability.

Khumalo said that the best protection lies in close coordination with South Africa’s Reserve Bank and in building up foreign-currency reserves to manage liquidity in times of stress.

“We can’t delink from the rand overnight. The peg gives us stability and regional credibility. But it also ties our hands when distortions happen outside our borders,” he said.

Worth noting, the South African Competition Commission’s case could set a legal precedent if the Constitutional Court rules in its favour.

The decision would clarify how far regulators can go in prosecuting global financial institutions accused of manipulating emerging-market currencies.

Until then, Eswatini, along with its neighbours Lesotho and Namibia which also peg their currencies to the rand remains watchful of how the case unfolds and what it could mean for the region’s financial stability.