Page 162 - SARB: 100-Year Journey

“But at that point we were sitting with what Mr Mboweni used to call an overdraft in dollars, just to make sure people understood what ... [NOFP] meant,” Mminele continued.
Resolving the NOFP “require[d] coordination between the National Treasury and the Reserve Bank,” Mminele said.
This was done to ensure consistency in policy, practice and practical application.
Maria Ramos, who was at the time the Director-General at National Treasury, said: “The ... [NOFP] was a huge amount of stress for us as a country. Effectively, South Africa did not have any reserves. It had negative reserves. Work on that had to be done. It was a painstakingly difficult issue that had to be resolved between ourselves at Treasury and the Reserve Bank.”
Maria Ramos, the former Director-General of National Treasury. /Martin Rhodes/ Business Day/Gallo Images
The issue was eventually resolved. South Africa now has positive reserves. “It doesn’t have a[n] [NOFP], and we shouldn’t go back there,” were Ramos’s parting words on the issue.
When resolving the NOFP, Mboweni adopted a two-pronged strategy. The first leg comprised a deliberate retreat from defending the rand.
Said Mboweni: “We were clear that we were not going to spend dollars we did not have defending the currency. We put out that policy position into the market. The market was aware we ... [were] not going to be involved in speculation skirmishes with currency traders.” However, “they [currency traders] pushed back.”
“They engage[d] in dogfights with us.” But Mboweni dug in and called the currency speculators’ bluff. “I said, I am prepared to let the currency go to whatever level. But I will not throw dollars to currency speculators.”
Mboweni justified his approach thus: “That was a very important policy statement. It said to the market, ‘Don’t waste your time to engage in a currency dogfight with the Reserve Bank. The policy position is very clear. We’re not going to do that.’”
The first round went to Mboweni and the central bank. The speculators got the message and retreated. This bought the SARB space and time to begin chipping away at the NOPF, and simultaneously start building the country’s foreign currency reserves – an important buffer in the monetary policy arsenal during times of crisis.
Secondly, the central bank brought the private sector closer. This enabled the SARB to “cream off excess dollars in the market, as and when the dollars were available,” Mboweni explained. Crucially, “we did not cream off everything.”
Moreover, “we use[d] the curve as much as we could. We left sufficient dollars in the market, but also put some dollars on the market in order to start reducing the ... [NOFP], so that by 2003, there about, we were now on a zero position. Then we began to build our reserve position,” Mboweni said.
By the time Mboweni left the SARB, “... there must have been about US$50 billion of positive foreign exchange reserves.” Getting to that position involved “a systematic and patient process.” It was “a culmination of policy pronouncement and consistency in policy. I can pat myself on the back. That is one of the greatest achievements post-apartheid South Africa made,” according to Mboweni.
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