Author: Gary Moore

Date: 16 December 2016

The Exchange Control Regulations[1] were made under the Currency and Exchanges Act, 1933[2] as amended (most recently in 1996 on three occasions[3]).

The Act enables the Governor-General[4] to make regulations regarding “any matter directly or indirectly relating to or affecting or having any bearing upon” currency, banking or exchanges.[5]

The Act also states that any regulation may be made “with retrospective effect.”[6]

And the Act stipulates that the Governor-General may by such regulations “suspend in whole or in part this Act or any other Act of Parliament or any other law” relating to or affecting or having any bearing on currency, banking or exchanges; and any such Act or law in conflict or inconsistent with any such regulation shall “be deemed to be suspended.”[7]

These provisions of the Currency and Exchanges Act undermine the Rule of Law. The Republic is founded on values that include the Rule of Law:[8]

The Currency and Exchanges Act, by vesting the President[9] with power to make regulations regarding any matter directly or indirectly having any bearing on currency, etc.[10] has been said to confer “powers of the very widest kind.”[11] The Rule of Law requires that the Legislature should have exclusive power to enact general rules, and that the delegation of legislative power to the executive should be within the narrowest possible limits.[12]

The courts have recently considered this provision of the Currency and Exchanges Act (conferring power on the President to make regulations on any matter affecting currency[13]) in the context of the Constitution’s provisions vesting legislative power in Parliament:[14]

The Pretoria High Court upheld the provision,[15] as did the Constitutional Court, which declared that it does not assign plenary legislative power to the President, but merely power to “regulate by imposing conditions” for export of capital; even if Parliament’s delegation of regulatory authority to the President is conspicuously abundant, “its exceptional nature is warranted,” said the Constitutional Court, in that “capital exports have the capacity to drain an economy of its lifeblood. … Currency moves with lightning speed” and has ceased to be a hand-held physical article for exchange purposes. Electronic communications enable it to be moved between locations and jurisdictions almost instantly:

Hence the need for special regulation [and] special amplitude of regulatory power.  The nature of the power the Act confers on the President to make regulations in regard to currency is unusually wide, but its unusual width meets the unusual circumstance of the subject matter.[16]

One member of the Constitutional Court dissented, holding that the Currency and Exchanges Act authorises executive rule by decree under guise of delegated legislation. The Constitution requires plenary legislation to be passed by the legislature, not the executive. The Act provides no substantive framework in which the President must exercise these extraordinary powers.[17]

Turning to the Currency and Exchanges Act’s provision enabling the President to make regulations “with retrospective effect,”[18] this undermines the principle of the Rule of Law that a law should not be retrospective. The Rule of Law implies one should be able to know of the law to be able to conform one’s conduct to it.[19]

The Currency and Exchanges Act’s provision authorising the President to suspend any law[20] likewise undermines the Rule of Law principle that plenary legislative power should not be delegated to the Executive but remain vested in the Legislature.[21] The Constitution stipulates that the legislative authority of the national sphere of government is vested in Parliament.[22]

This provision of the Currency and Exchanges Act (authorising the President to suspend any law[23]) has received to date only perfunctory judicial attention. The Pretoria high court struck down the provision,[24] but the Supreme Court of Appeal[25] reversed that high court order because the high court had made the order in the abstract.[26] The Constitutional Court did not disturb this aspect of the Supreme Court of Appeal decision.[27]

In 2005 the Reserve Bank governor stated the Bank would prefer exchange rates to be left to the market.[28]

[1] Govt Notice R1111 of 1 Dec 1961. Regulations made under the Currency and Exchanges Act, 1933.

[2] Currency and Exchanges Act 9 of 1933.

[3] By the Currency and Exchanges Amendment Act 23 of 1996 (extending then-current versions of the statute and regulations to areas of former so-called TBVC states, and providing for approval or refusal by means of computer process of applications to purchase foreign currency); General Law Amendment Act 49 of 1996 (deleting references to “South-West Africa”); and Judicial Matters Amendment Act 104 of 1996 (reinstating provision inadvertently deleted due apparently to the mis-sequencing of the other two 1996 Acts).

[4] Acting by and with the advice of the Executive Council of the Union. Interpretation Act 5 of 1910 s 3 sv “Governor-General.” This must now be read as the President acting in terms of the Constitution. Interpretation Act 33 of 1957 s 3 (as amended in 1961, 1983 and 1993) svv “Governor-General,” “State President” and “President.”

[5] Currency and Exchanges Act s 9(1). A regulation may authorize any person to whom a power or duty is assigned thereunder to assign it to any other person. Currency and Exchanges Act s 9(2)(c).

[6] And, if the regulations are made with retrospective effect, they shall also apply to matters about which legal proceedings have been instituted but not disposed of at promulgation thereof. Currency and Exchanges Act s 9(2)(e).

[7] In so far as it is in conflict or inconsistent with any such regulation. Currency and Exchanges Act s 9(3).

[8] Constitution of the Republic of South Africa, 1996, Chap 1 (Founding provisions), s 1.

[9] Or his predecessor the State President or Governor-General.

[10] Currency and Exchanges Act s 9(1).

[11] To make regulations on these matters. R v Parsotam [1949] 4 All SA 206 (N) 209-210. And the Act states the regulations may authorise the Governor-General to apply any sanctions set forth in them civil or criminal which he thinks fit to impose. Currency and Exchanges Act s 9(2)(a).

[12] International Commission of Jurists. The Rule of Law in a Free Society. (Declaration of Delhi, 1959):

[I]t is essential that the powers of the Legislature be fixed…by fundamental constitutional provisions or conventions … which … confer on the Legislature … exclusive power of enacting general principles and rules as distinct from detailed regulations thereunder.

[L]egislatures may find it necessary to delegate power to the Executive … to make rules having a legislative character. The grant of such powers should be within the narrowest possible limits and should carefully define the extent … of delegated legislation…

(Report on the International Congress of Jurists, New Delhi, 5–10 January 1959. Conclusions pp 3–9. Rpt of Ctte I ‘The Legislative and the Rule of Law’ cl II(ii)(b); Rpt of Ctte II ‘The Executive and the Rule of Law’ cl I.

(Congress participants included (to name a very few) Herbert Chitepo, Zelman Cowen, Lord Denning, Sir Patrick Devlin and Gerald Gardiner (as they then were), Rudolph Katz (vice president of the federal constitutional court of Germany), Lee Kuan Yew (described as advocate and solicitor and secretary general of the People’s Action Party) and S M Sikri (subsequently Chief Justice of India).)

[13] Currency and Exchanges Act s 9(1).

[14] The Constitution does not prohibit Parliament from delegating subordinate legislative powers to the executive within the framework of a statute under which the delegation is made, but Parliament cannot assign plenary legislative power to the executive including power to amend the statute under which the assignment is made or to amend (or override) other Acts of Parliament. See Executive Council of the Western Cape Legislature and Others v President of the Republic of South Africa and Others 1995 (10) BCLR 1289 (CC) interpreting the Interim Constitution of 1993, and dealing with presidential powers under Local Government Transition Act 209 of 1993.

[15] Shuttleworth v South African Reserve Bank and others [2013] 3 All SA 625 (GNP) paras [167], [168], [175.4]. On appeal the Supreme Court of Appeal did not consider its validity, dealing with the case on other grounds. Shuttleworth v South African Reserve Bank and others [2014] 4 All SA 693 (SCA) paras [25], [26].

[16] South African Reserve Bank and ano v Shuttleworth and ano 2015 (8) BCLR 959 (CC) paras [65] – [68]. The Court stated the debate about whether to best regulate capital movement by exchange controls or their absence was not before it. “For present purposes” capital exports are “of such singular concern to the country’s wellbeing” that the Constitution [in s 224(1)] vests special powers in the Reserve Bank whose primary object is to protect the value of the currency in the interest of balanced and sustainable economic growth. “That the Constitution affords an express mandate for protecting the value of the currency demonstrates the exceptional significance of the issue.”

[17] South African Reserve Bank and ano v Shuttleworth and ano 2015 [op cit] (CC) paras [88] – [90], [102] – [105], [112], per Froneman J.

[18] Currency and Exchanges Act s 9(2)(e).

[19] President of the Republic of South Africa and Another v Hugo 1997 (6) BCLR 708 (CC) para [102].

[20] Currency and Exchanges Act s 9(3).

[21] Declaration of Delhi, 1959. See text accompanying fn 12 above.

[22] Constitution s 43(a) read with s 44(1)(a)(ii).

[23] Currency and Exchanges Act s 9(3).

[24] Shuttleworth v South African Reserve Bank and others [2013] [op cit] (GNP) paras [162] – [164], [171], [175.6].

[25] Deciding the case on narrower grounds.

[26] Shuttleworth v South African Reserve Bank and others [2014] [op cit] (SCA) paras [14], [19], [36], [38], [39].

[27] South African Reserve Bank and another v Shuttleworth and another 2015 [op cit] (CC) para [83].

[28] “Monetary policy and sustainable economic growth,” T T Mboweni, Governor of the South African Reserve Bank (speech at Bureau for Economic Research conference ‘Growing the South African Economy,’ Somerset West, 9 Nov 2005). http://www.bis.org/review/r051114b.pdf  (accessed 16 Dec 2016). Relevant aspects of his speech were as follows (in summary):

A call frequently made is for deliberate depreciation of the rand’s exchange value to expand employment in the tradables sector and enhance overall growth. To realise such a goal in practice could require significant exchange rate interventions by the Bank, radical lowering of interest rates, abolishing of exchange controls and pronouncements by the Bank that it views the external value of the rand as too strong.

Each of these has its own challenges. Further relaxation of exchange control could boost confidence in the rand and prompt inflows rather than outflows of foreign currency, thereby leading to appreciation of the rand. Despite the complications, the Bank prefers a relatively stable and competitive level of the external value of the rand. Large movements in the exchange rate disrupt resource allocation and economic growth, while an overvalued exchange rate would disqualify deserving exporters from entering international markets on a sustainable basis.

Nevertheless, experience with large-scale intervention in the foreign-exchange market has been unfavourable. Numerous forces outside South African authorities’ control have an important bearing on supply and demand in the foreign-exchange market, so caution is warranted before entering the market with an exchange-rate objective in mind.

The Bank accordingly prefers to leave determination of the exchange rate essentially to market forces.

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Gary Moore

Gary Moore BA LL.B. (Witwatersrand) LL.M. (UC London) is a South African lawyer and Senior Researcher at the Free Market Foundation.

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