Global Courant 2023-05-19 10:00:18
The rand has been in free fall for the past 10 years and the news events of the past week have only served to remind South Africa of the rand’s vulnerability to international and local instability.
The rand hit a new low against the dollar last week, surpassing R19 against the US dollar following allegations that South Africa supplied arms to Russia.
In addition, the rand has taken a beating due to continued and increased tax cuts, the country’s graylist status, and uncertainty over economic and political policies.
Everest wealtha privately held investment and wealth management company, outlined some of the factors weighing on the rand and showed the depressing performance of the rand over the past decade.
“The value of the rand against other major currencies has attracted a lot of attention recently, highlighting its volatility and vulnerability to the market, and there are several factors influencing the exchange rate of the rand,” he said.
First, “political and economic uncertainty has had a significant impact on the rand over the last 10 years and has caused the currency to take a real seesaw.
“These events have led to a lack of foreign investment, which in turn results in the edge wobbling back and forth,” said Thys van Zyl, head of product development at Everest Wealth.
He added that the rand is known for reacting to international events and that developments in the US financial market have already had a major impact on the currency this year.
The country’s trade balance also affects the exchange rate of the rand. A significant trade deficit can also put pressure on a country’s currency. If a country imports more goods and services than it exports, there is a greater demand for foreign currency, leading to a depreciation of the domestic currency.
“Over the past decade, South Africa has experienced several trade deficits, which ultimately eroded the border,” said Van Zyl.
In addition, the National Treasury has brought further bad news for the country’s economy, expecting South Africa to miss its primary budget surplus target for the fiscal year ending February 2023.
South Africa is a major exporter of commodities such as gold, platinum and coal, and the value of the rand is also affected by the change in international commodity prices.
“If commodity prices fall, this could have a negative impact on export earnings, the trade balance and the overall value of South Africa’s rand.”
This is a critical factor influencing the rand right now, as the Bureau of Economic Research (BER) noted a decline in critical South African exports, adding that there is little chance that these will change anytime soon.
Central bank announcements and monetary policy decisions have also exacerbated the fall in the rand.
If a central bank pursues policies that increase the money supply or lower interest rates, this can weaken the currency. These factors influenced the value of the rand against other currencies, especially during the Covid-19 pandemic.
As a result of some of these factors, the rand has weakened significantly since 2013.
On May 15, 2013, the rand was R9.26/$, R11.94.00/€ and R14.10/£. As of May 15, 2023, the rand had weakened by 105% against the dollar, 73% against the euro and 69% against the pound.
Here’s how rand has performed against some of the world’s major currencies over the past 10 years:
Read: ‘Difficult compromises’ are coming to keep South Africa afloat
