Financial rand

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The South African financial rand was the most visible part of a system of capital controls. While the financial rand was abolished in March 1995, the capital controls remain in place to the present day on South African residents. These capital controls are locally referred to as Exchange Controls.

Capital controls have been in place in South Africa in various guises on an uninterrupted basis from the outbreak of the Second World War, when Great Britain and the dominions implemented the Sterling area.

Following the Sharpeville massacre in 1960, South Africa experienced significant outflows of foreign exchange on the capital account of the Balance of Payments and instituted an additional level of capital controls, known as the Blocked Rand system. This had the principal effect of blocking outflows of capital to the other countries in the Sterling Area, notably Britain.

The Blocked Rand system to some extent mirrored the German Reichsbank system introduced under Hjalmar Schacht in 1937, called "aski" accounts - short for Auslaender Sonderkonten fuer Inlandszahlungen (foreigners' special accounts for inland payments). In other words creating a closed loop system that did not create a claim on the foreign exchange reserves of the Third Reich, or in this case South Africa.

The report of the De Kock Commission on Exchange Controls tabled in November 1978, proposed a gradual easing of exchange controls. This saw the replacement of the Blocked Rand by the Financial Rand in early 1979. In line with this policy, the Financial Rand itself was abolished in 1983 and non-residents could repatriate the majority of their South African investments via the Commercial Rand.

This easing was, however, short lived and the Financial Rand system was re-introduced on 1 September 1985. The outflows during 1984 - 1985 were largely the result of economic sanctions in response to apartheid.[1] At the same time, the government enacted the exchange controls. Investments in South African by foreigners could only be sold for financial rand.[2]

The financial rand system provided for two exchange rates for the rand, one for current account transactions, and one for capital account transactions for non-residents.[3] Investments made in South Africa by non-residents could only be sold for financial rand, and limitations were placed on the convertibility of financial rand into foreign currencies.[4] Financial rand had the ISO 4217 currency code ZAL. The financial had a previous life, from January 1979 to February 1983. The 1985 crisis coincided with a default (then called a "standstill") on foreign debt by the apartheid government.

References

  1. ↑ Lewis, Jr., Stephen R. (1990). The economics of apartheid. Council on Foreign Relations. p. 76. ISBN 0-87609-056-0. Retrieved 2009-08-10. 
  2. ↑ "The Use of Foreign Exchange Controls to Promote Economical Stability". earnforex.com. Retrieved 8 July 2013. 
  3. ↑ Jonsson, Gunnar (2001). Inflation, Money Demand, and Purchasing Power Parity in South Africa (PDF) 48 (2). International Monetary Fund Staff Papers. p. 244. Retrieved 2009-08-10. 
  4. ↑ Roux, André (2005). Everyone's guide to the South African economy. Zebra. p. 124. ISBN 1-86872-925-7. Retrieved 2009-08-10. 

Further reading


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