South African Rand (ZAR): History of the Currency

What Is the South African Rand (ZAR)?

The South African rand (ZAR) is the national currency of the country of South Africa, with the symbol ZAR being the currency abbreviation for the rand in foreign exchange (forex) 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 a majority of South Africa's gold deposits, is located on this ridge.

Understanding the South African Rand (ZAR)

The South African rand (ZAR) was first 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 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 or weakened, meaning it costs more rand to convert to 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.

End of the Apartheid System

South Africa experienced major political changes in the early 1990s. For years, South Africa was ruled by apartheid; by the late 1980s and early 1990s, the political landscape had changed. One of the outspoken critics and leaders of the anti-apartheid struggle was Nelson Mandela—imprisoned for his views for 27 years. However, on February 11, 1990, Mr. Mandela was freed, and by 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 mainly contained photos of people and notable leaders from the apartheid regime.

Instead, a series of banknotes containing photos of the country's treasured wildlife were introduced. Also, in 2012, a rand banknote containing a picture of former President Nelson Mandela was released as part of the Mandela series.

Krugerrands

Krugerrands are gold coins that were minted by the Republic of South Africa in 1967 to help promote South African gold to international markets and to make it possible for individuals to own gold.

Krugerrands are among the most frequently traded gold coins in the world market.

The coins still have legal tender status in South Africa, although Krugerrands were never assigned a rand value. Krugerrands were 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) stands as the monetary authority for South Africa and issues its currency. Taking on major responsibilities similar to those of other central banks, the SARB is also known as 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 also includes intervention in the forex markets when necessary.

Interestingly, 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 among the same countries where only the South African currency circulated.

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 was 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 its gold exports.

Gold is the country's most exported good, representing 14% of total exports in 2021 or $20.1 billion. South Africa also exports other commodities, including palladium and iron ore, to predominately China, Europe, and the United States.

However, major world developments have also determined ZAR's price trajectory. The September 11 attacks in 2001 created global uncertainty, and the rand took a steep dive, falling to R13 per U.S. dollar (USD). 

After the currency steadied 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 span of 12 months, 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.

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 also one of the emerging market currencies that was hit hard by the 2008 financial crisis and the coronavirus pandemic. As of early 2024, the rand was worth approximately 0.05 USD.