Financial Rand


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Financial Rand

An accounting currency used in South Africa between 1985 and 1995. Under this system, the South African rand continued to circulate but investments made by non-South Africans could be sold only for the financial rand, which had strict conditions placed on its convertibility. The financial rand was introduced in order to prevent massive outflows of capital that began in response to South Africa's apartheid policy. It was abolished after apartheid was ended.
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Following the acceptance of this report, a two-tier exchange rate system was officially established in 1979, namely the commercial rand and the financial rand. The commercial rand was the official exchange rate, and this was largely determined through a controlled float.
In 1983, the commercial rand and the free-floating financial rand were unified in the controlled float of an effective rand, and the average exchange rate of the rand against the US dollar was maintained at US$1 = R1.1141.
The free-floating financial rand, on the other hand, was applicable to nonresidents' financial transactions, including foreign direct investment (FDI), repatriation of capital and profits, and outward capital transfers by residents and emigrants.
Maherbe's solution is to link the rand with the US dollar at a rate exporters can live with and reintroduce a financial rand as a barometer of how South Africa is regarded in the global economic community.
Among the major concerns was South Africa's retention, until earlier this year, of a dual currency--the financial rand and the commercial rand.
The financial rand was created when economic sanctions cut off South Africa from the world.
And a Witwatersrand Attorney General's probe in March revealed that in 1987 and 1988, almost every financial rand application involved bogus information approved by Reserve Bank management as well as the staff of commercial banks.
The abolition of the financial Rand and the relaxation of exchange controls make it easier for foreign business to come into the Republic, although inflexible labour markets and a relatively low productivity record are inhibiting factors.
Further, Stals' generosity to a favored few corporations that invest offshore via the financial rand (South Africa's dual currency, meant only for investors outside South Africa) contributed to finrand liabilities which, by most expert calculations, are approximately $12 billion, at an annual servicing cost of $1.5 billion.
In a nutshell, the financial rand was the currency used by non-residents to invest in South Africa while residents used commercial rands for ordinary current transactions.
For example gilts and semi-gilts which may have yielded 17% to a South African investor would yield 25.5% to the foreign investor entering the South African currency network via the financial rand - at a discount of 33.3%.

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