Johannesburg - Policymakers should stick to a gradual relaxation of exchange controls despite market pressure to completely abolish restrictions on capital moving out of the country, the commission of inquiry into the rand's 37 percent plunge against the dollar last year heard yesterday.
Robert Rebuzzi, the general manager of operations and technology for international banking at Absa Corporate and Merchant Bank, said: "Although should not lose its momentum, prevailing market conditions should always be taken into account in determining the rate at which these controls ought to be relaxed."
The rand's weakness against the dollar since its dramatic collapse in the last three months of last year had heightened pressure on authorities as many market commentators had seen the rand's devaluation as an opportune time to abolish all remaining exchange controls, Rebuzzi added.
Exchange control regulations were open to conflicting interpretations and at times resulted in an "uneven playing field and, in the extreme, a marketing tool for some of the more aggressive authorised dealers", Rebuzzi explained.
The commission this week heard that James Cross, the former senior deputy governor of the Reserve Bank, suggested the central bank's exchange control department review a transaction executed by Deutsche Bank for Sasol after another investment bank had complained to the regulator.
A heated exchange has since erupted between the exchange control department and Deutsche Bank over loopholes and varying interpretations of exchange control regulations where the regulator is trying to enforce measures not contained in its rulings.
The Reserve Bank has issued a manual entitled Exchange Control Rulings to provide some clarity on its regulations. Although the manual is only a guideline, which is not enforceable, Deutsche Bank, as an authorised dealer, has seemingly chosen to ignore the handbook's recommendations.
Petrus Balt, the group treasurer of Absa Bank, told the commission the impact of the rand's hammering last year had a mixed effect on the profitability of the bank's treasury operations.
"Gains were made on the foreign exchange and gold and currency options desks. In contrast, the interest rate derivatives and local and offshore funding desks were negatively affected by the sharp decline in liquidity," Balt said.
As a whole, Absa's treasury operations were adversely affected, he added.
Balt pinned the rand's devaluation on the immediate liquidity drain following a Reserve Bank statement in mid-October enforcing stricter implementation of existing exchange control regulations.
Absa was unaware of illegal or unethical trades to hurt the rand.