Established as the official South African currency on 14th February 1961, the rand has now become a liquid emerging market currency. In forex trading, the rand is referred to as an exotic pair which trades alongside an emerging market economy currency, carrying less liquidity than other developed market currencies and often traded against the US dollar. Since it’s stabilization, the rand has become a popular trading choice in the foreign exchange market.
The origins of the rand
Prior to the creation of the rand, as a British colony, South Africa operated under British tender at the time – pence, pounds and shillings. Nowadays, the South African rand is made up of 100 cents, is written with the symbol R and has the currency code of ZAR.
It’s name comes from the word “WitwatersRand” which means “white waters ridge”. This is the location that most of South Africa’s gold deposits were found and where Johannesburg was built, making this currency symbolic of the country’s heritage. Alongside being the official currency of South Africa, the rand is also legal tender in Lesotho and Namibia.
Politics and The Rand
The rand was introduced in 1961 when the country was established a Republic. After the creation of the rand, the currency held a higher value than the dollar, however this wasn’t set to stay. In the years after 1982, the value of the rand began to decrease following substantial international pressure combined with the sanctions against South Africa. Since then, The Rand has encountered several fluctuations in the exchange rate, which have correlated with political and economic movements in South Africa. This variation is particularly notable throughout the 1980s, following into the 1990s.
Following the recent stabilization of the rand, it has become a popular choice in currency trading. A major milestone for the rand was the creation of a series of bank notes, created in 2012 by the South African Reserve Bank. The notes featured the face of Nelson Mandela, in honour and to mark the importance of his role in creating peace for the country.
The Rand and trading
In currency trading, the rand is most commonly associated as an exotic pair alongside the US dollar. The rand component is an emerging market currency which has less liquidity than developed market currencies. Exotic currencies often have a higher cost to trade and carry a wider spread, meaning that the difference between the bidding price and the asking price for a trade is greater.
The lower liquidity of the rand means that this currency offers a higher volatility, resulting in a higher reward (or loss) opportunity with each trade. Since the economy has stabilized, the South African economy has become more developed than its market peers. In comparison, the liquidity of the rand is actually considered higher than many of those counterparts, which often appeals to experienced forex traders. As the rand is a commodity currency, it’s very reactive to changing in the global pricing of commodities, which contributes to its characteristic fluctuations in foreign currency exchange rates.
While the Rand can often be viewed as a risky choice for currency traders due to its volatility, when traded as an exotic pair it could prove very profitable to those who are equipped with experience in the market. To learn more currency exchange tips, head over to our blog post on this topic. Alternatively, spruce up your wider forex knowledge by signing up to one of our free industry workshops!