Does South Africa really need a stronger rand?

rand
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South Africa’s new president calls the current optimism experienced in the country as “a new dawn.” It’s a sentiment the country’s volatile currency seems to have embraced, pushing below 12 rand to $1 when Cyril Ramaphosa took over the ruling party. The currency, which has risen by some 15% in the last couple of months, maintains its newfound confidence as Ramaphosa became the country’s fifth president and brought back finance minister Nhlanhla Nene—whose 2015 axing first triggered the rand’s downward spiral.

Once pegged to the country’s vast gold reserves, the rand used to be 2:1 to the pound and nearly as strong as the dollar until a generation ago. Today, however, it seems pegged to the anxiety of post-apartheid South Africa. A stronger rand may boost the national psyche, but it’s really not clear if South Africa really wants its currency to keep getting stronger.

A malleable currency
South Africa’s currency is prone to manipulation, though. Last year, the country’s Competition Commision found that 17 banks, both local and international, were colluding on the rand dollar exchange rate to turn a profit.

Like Turkey, Russia and Brazil, South Africa’s economy allows large amounts of capital to flow in, making their currencies attractive to forex traders, explains Dinham. The rand was ranked the 20th most traded currency in 2016, with daily trades accounting for 1% of the global daily currency trading market, according to the triennial survey (pdf) by the Bank for International Settlements.

SOURCE: qz.com

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