South Africa clampdown hits markets

The rand's weakness could also be attributed to strikes in August

The South African rand has weakened, as the central bank confirmed a clampdown on currency speculators.

The bank had hoped to boost the rand by cutting down on speculative trading through the strict enforcement of existing rules.

However, many believe the long term weakness of the rand can be attributed to factors other than speculative trading, such as the slow pace of privatisation, widespread labour unrest and the 11 September attacks in the US.

The currency has weakened further in early trade on Monday amid fears that a clampdown could reduce liquidity in one of the most heavily-traded emerging market currencies.

One dollar bought 9.31 rand on Monday, compared with 9.28 on Friday.

Free and fair?

There are two reasons for tightening enforcement of existing rules, Lambertus Van Zyl, South African Reserve Bank (SARB) adviser, told the BBC's World Business Report.

He argued that if non-residents who invest in South Africa have restricted access to the country's markets, then so should 'speculative' traders, who by definition do not have investments there.

Secondly, speculative trading of the rand was "not acceptable in terms of existing exchange rules and regulation", Mr Van Zyl said.

"We are not closing down the market, we are not saying that banks can't trade in the rand, we are saying that there should be some fairness," he added.

Liquid flows

With $7bn-$11bn a day traded in the South African markets, they have become a lightning conductor for emerging market sentiment.

This liquidity means that traders use it as a "proxy hedge for developments in other emerging market", Mr Van Zyl said.

"If we can remove that to some extent, then we think it is a worthwhile exercise."

He disputed the theory that the SARB move could reduce liquidity to such an extent that the rand will fall even further.

"We do not think that liquidity in the foreign exchange market will be influenced to that extent," he said.

"We think liquidity will still be adequate to put sizeable transactions through."