HomeAnalysisEconomics of currencies: Why the rand still matters

Economics of currencies: Why the rand still matters

The way Zimbabweans look at currencies is an odd blend of reserve, disposition to the impulsive and unmeasured aversion to risk. The historical events which have seen Zimbabweans browbeaten by their own currency have pushed many to fret at every movement in the price of a particular currency.

Ngonidzaishe Makaha

The decline in value of the Rand may be just a short-term aberration which we might regret considering the opportunities we have thrown out had we allowed it to remain in circulation.
The decline in value of the Rand may be just a short-term aberration which we might regret considering the opportunities we have thrown out had we allowed it to remain in circulation.

Among the currencies allowed to trade in the country at the inception of the multi-currency regime in 2009 is the South African rand which has since seen a sharp depreciation against the greenback. When the multi-currency regime was introduced, the rand was trading at approximately US$0,10 but the current rates are pegged at ZAR1:USD0,069.

The runaway fall of the rand against the United States dollar in 2016 pushed economic agents in Zimbabwe, from the general citizens, corporate and financial sector to collectively reject the currency. Although the rejection could have been driven by what could be described as a form of distinct outright hedging where there is zero tolerance for risk or loss, it can also be argued that the move borders around self-conceited arrogance.

I have used the term arrogance because for a country with no currency of its own, we seem to choose positions which we deem superior yet at the same time end up throwing ourselves under the bus.

In Africa, the rand remains a superior currency, which is tradable internationally. There are many reasons why Zimbabwe should not reject the rand outrightly and I will just dwell on a few of them.

Opportunity for arbitrage

At a time the troubled southern African nation is experiencing dissipation in the price of two currencies which are legal tender, the creative financial system led by treasury analysts, money market dealers and financial traders should be looking at making riskless profit.

This is the time when financial institutions become innovative and move away from lousy practises like generating income out of withdrawal charges and monthly service fees on deposits. The rand-dollar discrepancy is an opportunity for financial institutions to make income through derivatives like “futures” and “forwards” where they enter into contracts to buy or sell either currency at a predetermined price and date.

Bullish traders would go short or agree to sell a currency they perceive to rise in value in the future. Bearish traders will go long or agree to buy a currency they perceive to lose value in the future.

The multi-currency regime presents a perfect opportunity for the creation of a robust currency derivative market, but it is regrettable that financial institutions have joined the bandwagon of those rejecting the rand without analysing some of these opportunities it presents.


Zimbabwe’s biggest trading partner is South Africa and rejecting the rand is not ideal for us as a country.

We need the rand for the bulk imports that come from South Africa. The little exports we are able to put on the South African market have become uncompetitive because they are denominated in United States dollars. The United States dollar has of late become a very strong and expensive currency relative to a basket of other international currencies.

This scenario where there is disproportion between the exporting and importing currencies further deteriorates our balance-of-payments position. It would be a different scenario if our exports to South Africa were denominated in rand.

Household consumption patterns

Though many have treated the rand as a an interior currency, we do not need to look beyond a typical Zimbabwean kitchen or bathroom to ascertain our stupidity in rejecting the South African currency.

Most of the bath soap, cooking oil, soup, detergents and cereals we use or consume have a “Made in South Africa” insignia on their packaging. The same applies to industry which uses a lot of South African products as raw materials and equipment.

Therefore, what is the logic in rejecting the rand?


South Africa is a host to an estimated one to two million Zimbabweans who fled the economic hardships back home. There are also thousands of Zimbabweans living and working in Namibia, Lesotho and Swaziland whose currencies are inextricably tied to the rand.

With the economy at its worst since 2009, many households are solely surviving on diaspora remittances as the local economy cannot provide employment or stable incomes. It therefore makes it difficult to evaluate the rationale behind the rejection of the rand because we could be costing the country billions in rand worth of remittances.

Liquidity gap

The prevailing liquidity crisis is a mirror of stagnant economic activity but the rejection of the rand has worsened the situation especially looking from the angle of remittances forgone.

Broad money has diminished as a result.


There are a lot of high achieving Zimbabweans based in South Africa who might want to invest in their home country through money markets, capital markets or resources. The way we have treated the rand as trash could annihilate their zeal and interest.

The same applies to South African investors who might want to put their rand denominated investments in the country.

It is true they can always exchange for other currencies but they would also want to ward off foreign exchange risk.


Tourism remains one of the most resilient sectors in our ailing economy. At the same time hot spots like Victoria Falls and Kariba attract significant numbers in South African tourists.

This questions our thoughtless action which has also pushed the corporate sector and financial services in rejecting the Rand.

Rand will bounce back

The root causes of the fall in the rand stem from a weak global outlook driven by stagnating emerging markets , tumbling commodity prices, labour and significantly, political developments within South Africa.

South Africa is not a failed political system yet and most of the issues that have affected the country’s economy and its currency in particular will be dealt with obviously. At the same time, South Africans will be going to elections soon and they will possibly elect a government that can usher in positive economic reforms.

Emerging countries particularly China and developed countries like Japan are also working on giving impetus to their economies, a position which can further drive global demand and push commodity prices up. This will bear a positive effect on the rand.

Therefore, the decline in the value of the rand may be just a short term aberration which we might regret considering the opportunities we have thrown out had we allowed it to remain in circulation.

The Zimbabwe dollar petrified our thinking and it is regrettable that we have extended the same ideals on other currencies. South Africa is the second largest economy in Africa in terms of Gross Domestic Product size but remains the richest in terms of Gross National Income per capita. South Africa remains Zimbabwe’s biggest trading partner and investor. Many Zimbabweans are living and working in South Africa while supporting the local economy through remittances and diaspora investments. The rand is a resilient currency and the domino effect remains confined to currencies like the Zimbabwe dollar which was never supported by a real economy. It is imperative that the rand remains a part of the multi-currencies allowed to trade and circulate in our economy.

Makaha is a financial consultant based in Harare and member of the Zimbabwe Economics Society (ZES). These New perspectives are co-ordinated by Lovemore Kadenge, President of the Zimbabwe Economics Society (ZES) email kadenge.zes@gmail.com and cell +263 772 382 852

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