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Currencies
SOUTH AFRICAN RAND
Introduction | Overview | Structure | History | Factors affecting change in exchange rates | Weekly trend of South African rand
Introduction


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 countryís 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".

Overview


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 hasnít 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.

Structure

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.

History


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.

Factors affecting the exchange rates between two countries


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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