The Exchange Control System under Apartheid

Abstract

Exchange controls were part of a complex system of maintaining some financial stability during apartheid, particularly as the apartheid economic system began to implode, and the macroeconomy deteriorated. The centrepiece of the system was a complex system of multiple exchange rates, with residents and non-resident transactions taking place under different currency regimes, creating at different periods a 'blocked rand', a 'securities rand', a 'commercial rand' and a 'financial rand'. Exchange controls appear to have assisted the apartheid regime to maintain macroeconomic stability despite other poor policy choices. However, measured in terms of monetary independence and exchange-rate stability, even this was a mixed success. Much like apartheid itself, short-term economic benefits came with severe long-term political, social and economic distortions. Twenty years later, some of the distortions remain, and, indeed, some of the controls. This highlights the need for ongoing reforms to make the post-apartheid South African economy less distorted and more competitive, and to continue to develop a modernized system for managing external risks.

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