What Is the South African Rand (ZAR)?
The South African rand (ZAR) is the official currency of the nation of South Africa, with the symbol ZAR being the currency abbreviation for the rand in foreign exchange markets.
The South African rand is made up of 100 cents and is often presented with the symbol R. The rand comes from the word “Witwatersrand,” which means “White Waters Ridge.” Johannesburg, the location of most of South Africa’s gold deposits, is located on this ridge.
Key Takeaways
- The South African rand (ZAR) was introduced in February 1961 and mostly held a steady peg against the US dollar until the end of apartheid.
- Since then, its value has depreciated as the South African economy has become increasingly linked to the rest of the world.
- Several countries in the region peg their national currencies to the rand.
- For the most part, the rand’s value was linked to the price of gold, South Africa’s main export, during its early days.
Understanding the South African Rand (ZAR)
The South African rand (ZAR) was introduced in February 1961, just before the Republic of South Africa was established. The rand replaced the South African pound at a rate of 2 rand to 1 British pound.
Up until the early 1970s, the rand was worth around R1.5 per U.S. dollar (USD). However, over the ensuing decades, the rand exchange rate has depreciated, meaning it costs more rands to buy one U.S. dollar.
For example, it had cost approximately R2.55 to convert to one USD in 1990, and by 1999, the exchange rate was R6.14 to the USD.
As of Sept. 22, 2024, the exchange rate was R17.47 to $1.
End of the Apartheid System
South Africa experienced major political changes in the early 1990s. From 1948 to 1994, South Africa was ruled by a policy of racial segregation known as apartheid.
By the late 1980s and early 1990s, the political landscape was changing. Nelson Mandela, a leader of the anti-apartheid struggle, was released from prison after 27 years on February 11, 1990. In 1994, he was elected president of South Africa.
After the dismantling of the apartheid system, the figures depicted on the rand’s banknotes were changed to reflect South Africa’s shifting identity and priorities, political and otherwise.
Up until the 1990s, the rand was illustrated with images of white Europeans from South Africa’s colonial past. Post-apartheid banknotes featured photos of the country’s treasured wildlife. In 2012, a banknote with an image of former President Nelson Mandela was issued as the first in a series.
Krugerrands
First minted in 1967, krugerrands are gold coins that raise the profile of the South African gold trade in international markets and make it possible for individuals to own gold as an investment. To this day they are among the most frequently traded gold coins in the world market.
The coins have legal tender status in South Africa, although krugerrands were never assigned a rand value.
Krugerrands are designed to derive their value exclusively from the price of gold at the time they are traded. If the price of gold changes, so does the price of Krugerrands.
The South African Reserve Bank
Modeled on the Bank of England (BoE), the South African Reserve Bank (SARB) is the monetary authority for South Africa and issues its currency. Taking on responsibilities similar to those of other central banks, the SARB is also a creditor in certain situations, a clearing bank, and a major custodian of gold.
Above all else, the central bank is in charge of the achievement and maintenance of price stability. This includes intervention in the foreign currency markets when necessary.
The SARB remains a wholly-owned private entity with more than 800 shareholders; these shareholders are regulated by owning less than 1% of the total number of outstanding shares. This is to ensure that the interests of the economy precede those of any private individual. To maintain this policy, the governor and 14-member board head the bank’s activities and work toward monetary goals. The board meets regularly during the year.
The Rand Monetary Area
The establishment of the Rand Monetary Area (RMA) in 1974 allowed Swaziland, Botswana, and Lesotho to issue currencies unique to their nations. Before the agreement, these countries had participated in an informal arrangement relying on the South African currency.
Through the RMA agreement, the South African rand remained legal tender in all member nations and circulated alongside the national money of the member nations. Botswana withdrew from the agreement in 1975.
In 1986, following the substantial depreciation of the rand, the countries replaced the RMA with the Common Monetary Area (CMA) to manage monetary policy. The CMA and the Southern African Customs Union work together to help member nations.
The terms of the new agreement provided Swaziland with additional flexibility in its monetary policy. In 2018, Swaziland changed its name to Eswatini.
The Rand’s Fluctuating Fortunes
For the most part, the rand’s value has been linked to the price of gold, South Africa’s main export during its early days. In recent years, the rand is somewhat correlated with gold prices as the South African economy still relies on gold exports.
Gold is the country’s most exported product, representing 14% of total exports in 2021 or $20.1 billion. South Africa exports other commodities, including palladium and iron ore, predominately to China, Europe, and the United States.
However, major world developments have also determined ZAR’s price trajectory. The Sept. 11, 2001, terrorist attacks in the U.S. created global uncertainty and the rand took a steep dive, falling to R13 per U.S. dollar (USD).
After steadying for several years, the rand was one of many emerging market currencies that got hit during the 2007-2008 financial crisis. Emerging market currencies suffered as investors flocked to safe-haven currencies such as the U.S. dollar and the Japanese yen (JPY). In the 12-month period from January 2008 to January 2009, the rand fell by more than 35% against the U.S. dollar.
During the global coronavirus pandemic, the rand weakened to more than R17 per USD and, as of February 2024, settled to nearly R19 per USD.
Why Is South African Currency Called the ZAR?
ZAR is an abbreviation for Zuid-Afrikaanse Rand, which means South African rand in the Dutch language. The rand takes its name from Witwatersrand, which is the location of a majority of South Africa’s gold deposits.
How Much Is a Rand to a Dollar?
As of Sept. 22, 2024, 1 ZAR = 0.057 USD.
Which Countries Peg Their Currencies to the South African Rand?
Three countries that peg their currency with the rand are Eswatini, Lesotho, and Namibia.
Are a South African Rand and a Krugerrand the Same Thing?
The krugerrand and the rand are both South African but they are not the same currencies.
Krugerrands are gold coins that are bought primarily by investors in the precious metal. Their value is based entirely on their gold content and fluctuates with the price of gold.
The rand is the common currency of South Africa. Rand coins are issued in denominations of 1, 2, 5, 10, 20, and 50 cents. Banknotes are issued in denominations of 10, 20, 50, 100, and 200 rands.
The Bottom Line
The South African rand, which is abbreviated ZAR, is the national currency of South Africa. Eswatini, Lesotho, and Namibia also peg their currencies to the rand.
When the rand was introduced in 1961, its value was linked to the price of gold. After the end of apartheid, the rand’s value began to fluctuate more as South Africa’s economy became more closely tied to the global economy.
The rand was one of the emerging market currencies that was hit hard by the 2008 financial crisis and the coronavirus pandemic. As of September 2024, the rand was worth about 0.05 USD.
