MARIUS REITZ | Exchange control belongs in parliament, not in a minister’s in-tray

It is trite to say that a law drafted in the 1930s, with accompanying regulations in 1961, cannot reflect an understanding of modern finance.

When South Africa’s exchange control regime took its present legal form there were no computers, no internet, no blockchain, no currency moving at the speed of a keystroke and no democracy. Yet the governing statute of the exchange control system is, and remains, the Currency & Exchanges Act of 1933, with regulations dating to 1961, a time before the modern financial system existed.

While sorely in need of an update, it is critical given the far-reaching impact of exchange control that it should not be modified through expedited ministerial regulation, as was proposed by the National Treasury in April with the publication of the Draft Capital Flow Management Regulations.

The regulations contain provisions which, if enacted, will make significant inroads into constitutionally enshrined rights to property, freedom of movement and the prohibition against self-incrimination, among other things. Such substantial law-making should occur in parliament as part of a participative and vigorous law-making process, through the process all major legislative changes in South Africa follow.

There is something of a democratic deficit in this area, given that section 9 of the 1933 Currency & Exchanges Act gives the “governor-general” (now the president) the power to make and amend regulations relating to “currency”, “banks” and “exchange rates”.

Then the South African Reserve Bank updates interpretations and rules through its own manual and circulars. There is no requirement that parliament debate the substance of these gazettes and circulars, no portfolio committee hearings, no calls for public participation, no vote in the National Assembly and no concurrence from the National Council of Provinces.

In cases where significant amendments are made, what happens through this regulatory process is, in effect, law-making with limited public engagement, and a standing mandate for the Reserve Bank to write manuals to adjust rules on the movement of money across South Africa’s borders as it sees fit.

Given how fundamentally South Africa’s constitution transformed the country after 1994 into a democratic order built on participatory law-making, judicial oversight and accountability to parliament, it should not be controversial to suggest that the laws governing something as consequential as capital movement across borders be brought into line with that transformation.

Additionally, the draft Capital Flow Management Regulations and their accompanying draft manual released on August 3 stop businesses sending crypto across borders, which limits corporate stablecoin use ― the world’s most common use of crypto — as they provide instant cross-border, low-cost payments good for trade.

The regulations will affect many economically active citizens.