Exchange controls and exchange rate policy in the South African economy

Abstract

Because South Africa's balance of payments are vulnerable to changes in the gold price and to political crises, foreign exchange control and exchange rate policy is of crucial importance. The first section of this paper analyses the structure of the balance ofpayments and outlines the adjustments that are required to overcome shocks to both the current and capital accounts. The second section analyses recent exchange rate policy and argues that the policy preference for undervalued exchange rates has the effect of benejitting profits at the expense of wages. The third section looks at exchange control policy and the liberalisation of capital flows in the 1980s. Declining rates of profit and political uncertainty made it increasingly attractive for South African companies and individuals to invest abroad resulting in pressure for exchange control relaxation. Because access to international financial markets is uncertain, liberalisation does not appear to be appropriate for a country subject to volatile fli...