South Africa's rand was launched in February 1961, coinciding with the establishment of the Republic of South Africa. The currency name, Rand, was derived from Witwatersrand, an Afrikaner term for "white waters ridge." Witwatersrand is the geographical location of a 56-kilometer long ridge that was historically the site of intense mining activities. It is located northwest the city of Johannesburg.
In 1886 the discovery of gold in the region by two prospectors attracted multitudes of wealth-seekers and labourers, which led to the founding of the city. The area became one of the world's largest producers of gold, with more than 50,000 tonnes extracted since its discovery, or about half of all production around the globe.
The rand is symbolised by R and has a currency code of ZAR. There is currently more than R1.4 trillion in circulation. A volume of approximately US$60 billion of the currency is traded daily on South Africa's foreign exchange market including spot and futures trade. The currency is regulated by the South African Reserve Bank. The currency has banknotes of R10, R20, R50 R100 and R200, and they feature images of former president Nelson Mandela on one side and South African fauna on the other.
The History Of The South African Rand: Legacy Of A Gold Boom
South Africa has been inhabited by native populations for 2,000 years, most notably the Khoikhoi and Xhosa. In 1652, the region of what is now Cape Town was colonised by the Dutch as a supply station and resting area for ships making the journey between Europe and countries in the Indian Ocean and Far East.
The region was taken over by England in 1795. Conflict between the Afrikaner colonists and the British administrators ensued intermittently over the following century and resulted in the Boer War of 1909-10, after which the Afrikaners declared independence. The country, however, remained a part of the British Commonwealth until 1961, when a referendum was held to establish the Republic of South Africa.
Trading Outpost On The Cape Of Good Hope
Before European settlers arrived, the local population of South Africa customarily traded in barter and token money such as shells. When the first European colony was established in Cape Town in 1652, the Spanish dollar Real 8 was in common use for trade among maritime traders stopping in South Africa. In subsequent years, this was successively replaced by the Dutch guilder and the rix-dollar, a sterling silver coinage common in Northern Europe. And due to intensifying European trade with Far East nations, other currency was common and included the Indian silver rupees, gold pagodas and mohurs, Japanese koban, English guinea, Portuguese joannes and Russian rubles.
In 1782, the Dutch governor at the time, Joachim van Plettenberg, introduced paper money in Cape Town denominated in rix dollars, due to an inability to obtain enough coinage from the Netherlands to fulfill local needs. This money was issued on hand-written notes that featured a government stamp and the date of issue. With growing influence of British trade and the British Empire, however, the British pound began to see widening circulation in the colony.
In 1795, the British began to take over the colony and by 1806 had consolidated their administrative control of the region. From this time forward, the British pound became the dominant currency, though broad usage of other currencies, most notably the Dutch guilder, continued. This situation remained until 1923, when South Africa's government began issuing its own money, the South African pound, which was based fully in appearance and value on the British predecessor. With the establishment of the South African Republic in 1961, the country issued its first own wholly local currency, the rand.
The Republic Of South Africa
The rand entered circulation in that year valued at 2 per British pound, and around 0.70 per U.S. dollar. In the early years following its launch, the government indexed the currency to the pound and the dollar. It was able to maintain the rand's strength against foreign counterparts due to the country's solid position as a commodity exporter. The situation began to change in the 1980s, however, as pressure appeared for South Africa to abandon its policy of apartheid, which officially segregated the white Afrikaner descendants of Europeans from the local black African population.
In 1985, South African President P.W. Botha gave a speech to parliament in which he refused to give in to demands from the local black population for reform of the system of segregation. The speech was followed by internatonal sanctions and boycotts against the country, and the rand weakened to below R2 per USD.
Following a referendum in 1992 to dismantle apartheid, South Africa held its first universal election in 1994. The African National Congress party, representing the black majority, took over the government of the country. The rand held stable value in the initial years of President Nelson Mandela's ANC government, but it began to weaken in 1996 following hints of domestic policy changes and in reaction to some local political disturbances. Following the election of the country's second democratically-elected president Thabo Mbeki, the currency weakened further amid investor concerns over a widened current account deficit and accelerating inflation.
Monetary policy in South Africa is managed by the South African Reserve Bank. The country's interest rate, also known as the "repo rate," is set by the bank's monetary policy committee (or MPC), which meets six times per year at intervals of around 60 days. The MPC uses a "flexible" inflation targeting system to adjust the interest rate, based on the variation of the country's consumer price index.
Economy Of South Africa
South Africa is the 31st largest global economy ranked according to its gross domestic product. It is recognised as a middle income emerging market with well-developed financial, legal, communications, energy and transport sectors. The country has a diversified industrial sector and is a major producer of commodities. Top industries in the country include mining, automobile assembly, metalworking, machinery, textiles, iron and steel, chemicals, fertilizer, foodstuffs and commercial ship repair. The country is the world's largest producer of platinum, gold and chromium.
Despite its relatively ample supply of natural resources, it has suffered in recent years from insufficient infrastructure, most notably in the electric sector, which has experienced periodic episodes of rolling blackouts. The country's economy has also seen severe unemployment of up to 25%, with rates running even higher among black youth. South Africa's top trading partners are China, the U.S., the United Kingdom, Germany, Hong Kong and India.
Foreign exchange and financial trading in South Africa are regulated by the Financial Services Board and the South African Reserve Bank. The two bodies are independent, but their directors are approved by the country's Finance Ministry.
Major South African Rand Currency Pairs
In forex trading on the Johannesburg stock exchange, the South African rand is commonly traded with several currencies, including USD, EUR, AUD and GBP. The rand is also used for trading in synthetic currency pairs with regional African currencies such as ZMW, KES and NGN, among others.
Rand Bills And Coins
Since its introduction, the rand has been issued as coins and paper money. South Africa's banknotes are printed by the South African Banknote Company and coins are manufactured by the South African Mint. Some of the popular nicknames for its currency include buck, smeka, clips, tiger, ka-ching, boyz, bob and tom. Coins circulating in the economy include 5, 10, and 50 cents, and R1, R2 and R5.
The Rand Around The World
The rand is the 18th most traded currency around the world, according to data from the Bank of International Settlements. In addition to serving as the official currency of South Africa, it is also used in Lesotho and Namibia. It is also widely used as an unofficial currency in Swaziland and Zimbabwe.
Where Is The Rand Today?
The rand weakened to below R13 per dollar following terror attacks in the U.S. in 2001. The currency recovered value over subsequent years, rising to as high as R6 per dollar, but it remained weak under pressure from fallout in the global financial crisis in 2008-2009. Since the election of President Jacob Zuma in 2009, the rand has resumed a trend of weakening amid concerns over the strength of the country's export sector. More recently, the currency has slipped further under the influence of hints of a possible rate hike by the U.S. Federal Reserve and a decision by China in August 2015 to allow its currency to depreciate.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…