What is the Future for Rand?

History of the rand currency

The South African rand has become the official currency since 1961, before establishing the Republic of South Africa. 

In the 1960s, the rand was worth about R1.5 relative to USD. Over time, the currency exchange rate decreased and devalued. For instance, its exchange rate to one USD  increased by R3.59 in the period of 1990-1999.

2013 became the beginning of new lows caused by the quarrying mining industry. In 2015, in the period of just 4 days, the rand dropped in value over 10% because of President Zuma’s shocking decision that a Finance Minister would be appointed.

In 2016, the rand dropped over 8% due to the fact that the United Kingdom left the European Union. It was the biggest single-day drop of the rand since the 2008 economic crisis.

The South African currency recovered from its six-month low rates in 2017. According to Reuters, South Africa is highly responsive to global investors’ position as the country depends on foreign money to cover its budget and ongoing account losses.

In 2020, the opportunity for South Africa’s economy narrowed by a record 7%. However, it has shown symptoms of recovery this year, with investors getting financial advantages and waiting for new statistics.

The factors affecting the rand currency

Like any other financial product, the value of the rand is affected by the market capabilities of demand and supply, considering the fact that the South African economy functions within the exchange rate system. The need for a floating exchange rate probably can be changed as the value changes frequently, relying on different circumstances. The relevancy of a currency’s demand to supply defines its value, which is attached to the other ones. In the case of the rand, its present drop can be connected to a myriad of basic concerns that the regional market stands for. 

Since the country significantly depends on the export of mineral resources, the decreased prices of products have extremely weakened the rand. A low economic growth resulted in the demand for Chinese goods, which has caused the decrease of worldwide rates.  

As the national bank is raising interest rates which counts as a dynamic change, there is the risk of crushing the economical growth that is only increasing at a 1.5% rate. 

Many financial institutions are affected by the change in exchange rates of the rand and the brokers are among them. For instance, XM is a popular forex broker in South Africa and the XM minimum deposit in Rands has also been affected as inflation levels are increasing in South Africa. Despite this, the investors are hopeful about the currency in the near future.

Additionally, if the rand recovers remarkably, the South African businesses, like retailers and banks, will also gain profits.

The future of the rand

The weak rand has various consequences for the development of the nation. As the currency rates get worse, it is increasing inflation risk since the values of imported products are growing. Even if the Reserve Bank chooses to maintain interest rates low, they risk having even bigger rates of inflation, which will just affect the rand even worse. The nation is facing the greatest reduction since 1992, which showed in raising the price of food and forced the agricultural sector into bankruptcy. 

The specialists suppose that the rand could end this year with approximately R14.80 to the dollar. It should be mentioned that the currency closed the week as the best developing-market one against the dollar. The South African currency has been strengthening more than expected. The rand has increased to 4% relative to USD since the year has started.