Reflections on the South African rand crisis of 1996 and its consequences

Janine Aron () and Ibrahim Elbadawi

No 1999-13, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: After South Africa's democratic elections in 1994, large capital inflows were induced by the cessation of trade and financial sanctions, improved creditworthiness and a liberalised capital account for foreigners. The flows were managed in a classic trade-off between currency stability, and raised interest rates to counter inflation resulting from a credit boom and partially sterilised intervention. In early 1996, the currency suffered a speculative attack. Using a theoretical model of currency crises, we present some empirical results suggesting the importance of economic fundamentals and policy credibility as determinants of investors' devaluation expectations prior to the crisis. Poor growth associated with subsequent protracted currency volatility and high interest rates argues for a range of complementary policies to manage inflows in South Africa. These include reserve requirements on certain inflows, prudent further liberalisation of domestic exchange controls, improved private and government savings policies, a medium-term public debt framework and closer monitoring of risk management by banking and other financial institutions.

Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:7131a8ea-2814-4d7a-9688-c86858bd0fc0 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:csa:wpaper:1999-13

Access Statistics for this paper

More papers in CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Julia Coffey ().