Since South Africa’s first democratic elections in 1994 the strength of the South African rand started on a journey of steady decline. Initially it was uncertainty about the country’s new government that saw the rand weaken to an average R3.55 versus the dollar in 1994 (Historically the rand was worth US $ 1.40 from the […]
Since South Africa’s first democratic elections in 1994 the strength of the South African rand started on a journey of steady decline.
Initially it was uncertainty about the country’s new government that saw the rand weaken to an average R3.55 versus the dollar in 1994 (Historically the rand was worth US $ 1.40 from the time of its inception in 1961 until 1982. Then political pressure and sanctions eroded its value with the worst rand/dollar exchange rate under apartheid being R2 to the dollar in 1985).
The rand/dollar exchange in the post-apartheid South Africa had been impacted by national and international social, political and economic events. The 2001 September 11 attacks on the World Trade Center in New York caused the rand to fall to a record low of R13.84 to the dollar.
The steady decline of the dollar since 1994 can be seen here:
Other factors which impacted on the value of the rand were local events, such as increasing debt, socio-political unrest and energy issues likes Eskom’s power crisis which started in 2007 caused major issues in the mining and telecommunications sector and leading to production cuts and mine closures. This caused the rand’s value to spike up from just above R6 to the dollar in 2006, to over R7 in 2007.
The European sovereign debt crisis has had an impact on the global economy as well as the local currency.
The euro-crisis is in itself an extension of the global recession which followed the “global financial crisis” in 2007 – which sent global markets, South Africa included, into stormy times.
Similarly the rand also showed a steady decline to the pound, which can be seen here:
Where will it end? With the value of the rand depreciating to a 14-year low breaking through R20 to Sterling and dropping to R12.82 to the dollar this week, economists are not sure about the future.
Some say the rand is faring better than other emerging market currencies, including Russia and Brazil and could recover. Others say exporters benefit from the weak rand.
However, a weak rand will lead to a rise in interest rates and inflation, which will impact on the buying power of the average South African in increase poverty.