The South African central bank has said the that perception that the African nation has aligned itself with Russia could result in the imposition of secondary sanctions which threaten financial stability. The bank also warned in its latest financial stability review that such a perception poses “a future threat to the participation of South African financial institutions in the global financial system.”
Central Bank Tasked With ‘Protecting and Enhancing Financial Stability’
The South African Reserve Bank (SARB) has said the country’s “non-aligned stance” on the war between Ukraine and Russia could “pose a future threat to the participation of South African financial institutions in the global financial system.” According to the central bank, the possibility of secondary sanctions being imposed on South Africa over its alleged pro-Russia stance further threatens financial stability.
In its recently released Financial Stability Review (FSR) report, the SARB noted that U.S. Ambassador Reuben Brigety’s weapons to Russia claims had contributed to the South African rand’s rapid decline on May 12. As reported by Bitcoin.com News, the rand’s exchange rate versus the greenback fell to a new low of 19.51 rands per dollar. The decline has continued and this culminated in the rand setting a new all-time low of 19.76 per dollar on May 25.
While several South African politicians and government officials have blasted Brigety and accused the United States of bullying, the SARB appeared to strike a more conciliatory tone in the first edition of this year’s FSR report. Explaining the central bank’s mandate, the report noted that while the central bank is tasked with “protecting and enhancing financial stability,” it should nonetheless “refrain from taking actions that would harm financial stability.”
Although the report does not directly identify support for Russia in its ongoing war with Ukraine as a step that threatens financial stability, it does however point to the warning issued to South Africa by U.S. Treasury Secretary Janet Yellen when she visited the country in Jan. 2023. According to the FSR report, Yellen not only implored the South African government and local businesses to comply with its Russia sanctions policy but threatened penalties against violators of this policy.
Meanwhile, the SARB added that the recent grey-listing of South Africa by the Financial Action Taskforce only makes the threat to financial stability even greater.
“The events reported in the media and recent remarks by the U.S. Ambassador to South Africa could change perceptions about South Africa’s neutrality, which could build up to a point where it triggers secondary sanctions being imposed on South Africa. Considered along with the recent Financial Action Task Force (FATF) greylisting, the potential implications for the South African economy are severe, and the considerations from a financial stability perspective pertinent,” the SARB warned.
In the event that no secondary sanctions are imposed, South African financial institutions’ foreign counterparts may still react to the recent events by intensifying the scrutiny of local banks, the report warned. They may also respond by reducing “their exposure to South Africa as part of their own risk management processes.”
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