The South African Rand (ZAR) is the official currency of the Republic of South Africa. The South African government switched to a system that formally expressed parity against the United States Dollar (US$) in 1979. The foreign debt crisis of 1985 took the Rand to an all time low of US$ 0.43. During the mid-eighties, a dual exchange rate system or the Financial Rand was introduced to protect the local economy from adverse effects of large capital outflows. The Financial Rand was created by the sale of non-resident assets in the country and was available only to foreigners for investment in South Africa. During time of economic isolation, the Financial Rand served South Africa well. However, it also had numerous disadvantages. The Financial Rand invariably stood at a discount to commercial Rand and during 1992 this discount was almost 40% while, in 1993 the discount declined to 20%. In fact, the size of the discount also played a major role in determining South Africa’s relative attraction as an investment destination. Due to its limitations, the government decided to terminate the Financial Rand and dual exchange rate system was finally scrapped in March 1995.
Over the past 80 years, the cost in United States currency of a South African Rand has fallen from $2.43 to marginally above $0.10 at present. Since the beginning of 1980’s, the South African authorities have adopted various foreign exchange regimes. For most of this period, the Rand floated with various degrees of official intervention with a general downwards trend.
The composition of the world foreign exchange market
Source: Bank for International Settlements (April 2013)
The Rand is currently the world’s 18th most traded currency, down from 10th place in 1998. Figures released by the Bank for International Settlements (BIS) show the Rand’s present ranking is an improvement compared to 2010, when it was ranked 20th. The Rand now accounts for 1.1% of world trade which is equivalent to US$ 60bn of daily currency trading.