Financial edge

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Financial Rand and Commercial Rand , Afrikaans Finansiële Rand and Kommersiële Rand , were the names for various forms of the national currency, the South African Rand , in a two-part currency and exchange rate system that existed in South Africa from 1979 to 1983 and 1985 to 1995 .

Forerunners to this system existed in the form of the Blocked Rand from 1961 to 1976 and the Securities Rand from 1976 to 1979. The aim of these measures was on the one hand to make investments from abroad attractive and on the other hand to restrict the outflow of capital from South Africa. In addition, normal payment transactions should be separated from the financial market for capital transactions in order to protect trade in goods and services from the unforeseeable effects of capital movements.

The financial rand, which was a unit of book money for the financial market without its own cash , had the ISO 4217 currency abbreviation ZAL versus ZAR for the commercial rand, which represented the book and cash of the South African rand for other payment transactions and its regular exchange rate.

precursor

The trigger event for the introduction of the mechanisms underlying the two-part monetary system was the Sharpeville massacre of 1960, as a result of which there was a decline in foreign investment in South Africa as a result of the worldwide protest against the apartheid system , as well as disinvestment and an outflow of capital from the country came. In response, the "Blocked Rand" system was introduced in 1961, imposing restrictions on the withdrawal of foreign capital and the transfer of funds abroad by South Africans.

From then on, sales proceeds from foreigners in South Africa had to be invested in special Blocked Rand accounts at South African banks . On the other hand, foreigners who wanted to change foreign currencies into South African rand could now acquire the national currency by buying blocked rand stocks instead of exchanging money at the regular exchange rate . The purchase of this Blocked Rand, which was largely informal, was cheaper than the regular exchange and was therefore used more often than the official currency exchange.

In 1976 this system was converted to the so-called "Securities Rand" mechanism. Sales proceeds from foreigners were classified as securities rand. These could be traded through currency exchange on the Johannesburg stock exchange, so that the seller could export the proceeds in the desired foreign currency. In contrast, the buyer brought new foreign capital into the country, which compensated for the capital outflow.

Functionality and development

In 1979 the "Securities Rand" system was replaced by the "Financial Rand" (Finrand). This was a discount on the regular exchange rate of the South African Rand, which was called the “Commercial Rand” (Comrand) and was almost exclusively owned by the residents of the country and by South African companies and institutions. The reduced financial rand rate applied, on the one hand, to investments in South Africa by foreigners, including the acquisition of South African securities . The flow of capital into the country in the form of investments and securities purchases became more attractive because it was cheaper than at the regular rate. On the other hand, dividends and interest income from such investments could be exchanged back at the regular commercial rand rate, which created a further incentive for investments.

On the other hand, the financial rand rate also applied to the exchange of South African rand for foreign currencies to withdraw capital abroad, which in this way became financially unattractive. Stocks at Financial Rand could therefore not be used for the free acquisition of goods and services. The rate of the Financial Rand was determined by the Exchange Control Department based on the ratio of the inflow and outflow of capital to and from South Africa. It was on average 25 to 40 percent and at times up to 50 percent below the rate of the Commercial Rand, the difference between the two rates was considered an indicator of the business climate in the country. A conversion from Financial Rand to Commercial Rand or vice versa was only possible with the approval of the South African Reserve Bank .

End of the Finrand system

The two-part monetary system was suspended in 1983 in favor of a single exchange rate. After the Rubicon speech by then President Pieter Willem Botha on August 15, 1985, the South African government reintroduced the financial rand at the beginning of September of the same year, as the global reaction to the address caused a sharp drop in foreign investments and the outflow of Capital increased significantly. The system was abolished in 1995 after the end of apartheid.

literature

  • The Financial Rand (Finrand). In: Andre Roux: Everyone's Guide to the South African Economy. Zebra Press, Cape Town 2005, ISBN 1-86-872925-7 , pp. 124/125
  • The Currency Market. In: Pieter Cornelis Smit et al .: Economics: A Southern African Perspective. Juta and Company Limited, Kenwyn 1996, ISBN 0-70-213447-3 , pp. 620/621
  • Stephen R. Lewis: The Economics of Apartheid. Council on Foreign Relations Press, New York 1992, ISBN 0-87-609056-0 , pp. 76-79