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Currencies |
| SOUTH AFRICAN RAND |
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| Introduction
| Overview | Structure
| History | Factors
affecting change in exchange rates | Weekly
trend of South African rand |
| Introduction |
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Rand is the official unit of currency used as a legal tender in
Republic of South Africa. The ISO 4217 currency code for the South
African rand is ZAR and numeric code is 710. ZAR is an acronym for
Zuid afrikaanse Rand, "Zuid Afrika" being a term used
for the country’s name in the Dutch language. It was introduced
as the national currency of South Africa with the independence of
the country in 1961 and hence it replaced the South African pound.
The rand is divided into 100 equal parts of its subunit, which is
none other than "cent".
The South African currency gets its name from "Witswatersrand"
i.e. the name of the white water ridge onto which the city of
Johannesburg is constructed and most of the South African gold
deposits are located, rand meaning a ridge. In daily use, South
African rand is denoted with the symbol "R".
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Overview
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South Africa is one the fastest developing countries of the world
courtesy the possession of large pool of abundant natural
resources, but the growth of the nation still had been on a weaker
side. The problems of high poverty and unemployment still prevail
dominantly over the economy of South Africa. The same trend had
been observed in the case of value of its currency. During the
initial 20 years of existence, the South African rand was valued
even higher than US dollar; the fall in the value of the currency
in the recent years hasn’t been recovered yet. Though some
industries have benefited from this fall in the value of rand like
the tourism industry and even the more important gold mining
industry.
In the current scenario, the rand has caught
attention of the speculators and investors because it is
considered to be under rated by 15 to 20% and the values are
subject to fluctuations. There also exist some government currency
policies to control the import-export of the currency. One is that
the import and export of more than R5000 is restricted except if
it is exchanged with the countries Lesotho, Swaziland and Namibia.
Any foreign currency imported and exported from South Africa must
be declared.
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Structure
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South African rand being a newly adopted
currency uses the decimal system like all other
modern currencies. The issuance and distribution
of rand in bank notes as well as coinage are in
the hands of South African Reserve Bank. The
calculation of the requirement of currency in
the country, the supply and maintenance of the
availability are all the functions of the
reserve bank. But the major issues like what
denominations to be issued or removed etc are
decided upon by the government of the country.
The unit of South African currency is subdivided
into 100 equal cents and like most of the
currencies; the smaller denominations of the
currency are available in coins only. Coins are
minted in 9 denominations i.e. 1 cent, 2, 5, 10,
20, 50 cents, 1 rand, 2 and 5 rands. The 1c and
2c coins are rarely used in the daily operations
as most of the goods in the country have rounded
off values to the nearest 5c. Some other coins
are also issued by the reserve bank that cannot
be termed as a normal currency and are used
rarely. One of them is a gold coin Kruger rand,
that can be cashed from any bank in the world
and is valued depending upon the value of gold.
The other one is the Mandela R5 proof coin that
is the first ever coin in the history that
feature a smiling statesman. Rand banknotes are
printed in only 5 face values i.e. R10, R20,
R50, R100 and R200.
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| History |
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The African continent stayed unexplored for ages until
the European super powers of that time started
exploration voyages. The "cape of good hope"
was the first African headland to be discovered by the
Portuguese and by 1652, the Dutch started to get
settled there. The cape was an important landmark in
establishing a sea route to the Far East and the
country acted as the door to explore Africa. The
inhabitants of South Africa earlier used barter system
of exchange before it was discovered but with time as
it transformed into a trading center, many a
currencies were used depending upon the respective
rule over the country. The first currency introduced
in the country was guilder and since then a long list
of currencies were used. During the late 18th century,
Rix dollar used to be the currency of South Africa and
during this phase, for the first time in history of
the country, paper money in the form of written bank
notes were issued. Shortly after the introduction of
paper money in the country, bank was established for
the first time in 1793 with the name of Lombard bank
but was forced to discontinue its operations in 1837
because of the stiff competition from the private
banks.
The current official currency of
South Africa i.e. South African rand came into
existence 1961 when it replaced the prevailing
currency at that time i.e. pound sterling. The reserve
bank of South Africa was established in the country as
the central bank in the year 1921, took over the
control of the new national currency. Previously, the
printed bank notes of currency were imported from the
United Kingdom, as there were no printing facilities
available in the country but a short while after the
introduction of South African rand, a bank note
factory was also established. Since its inception
until 1982, rand had a high value, even higher than
the US dollar. But after 1982, the phase of constant
devaluation of the currency commenced. A series of
events including the infamous Rubicon speech by the
state president adversely affected the currency and
till 2001, the currency dropped down to its lowest
value that was US$1 = R13.84. The currency has
recovered quite a bit but is still at value lower as
compared to that of dollar.
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| Factors
affecting the exchange rates between two countries
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The volatility in the foreign exchange rates
depends upon a numerous macro economic factors that
have different degrees of importance to different
economies of the world. Some special and exceptional
factors affecting the rates may also exist in the case
of different countries. Following are shown the common
factors on which the foreign exchange rate depends
- Flow of imports and exports between the
countries
- Flow of capital between the countries
- Relative
inflation rates
- Fluctuation limits on exchange rate
imposed by the governments of the countries
- Merchandise trade balance
- Rate of inflation in the country
- Flow of
funds between the countries for the payment of
stock and bond purchases
- Relative growth
- Short term
and long term interest rate differentials
- Cost of borrowings
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