Could Cape Town and the Western Cape have its own currency?
A study published by IG Group and the London School of Economics has put forward a test case on the potential implications of the Western Cape adopting its own currency.
Creating its own currency would allow the Western Cape to heighten existing economic advantages: but at what cost to the rest of South Africa?
If the province were to create its own currency – the Cape Rand – it would be able to improve existing economic advantages, the study said.
Why might the Western Cape create its own currency?
According to IG Group, the Western Cape is the most economically developed region of South Africa and has one of the highest regional GDP per capita.
“The South African rand is used within both developed and developing regions of South Africa. In contrast to other parts of South Africa, the province is not reliant on mineral resources that follow global commodity cycles (eg diamonds, gold, coal),” it said.
And of the strength of the province as an independent area, the report argued that it is administratively and politically the most developed area in sub-Saharan Africa.
- It has the largest share of non-resource-based exports in South Africa
- It has a very good education system and is home to the some of the country’s best universities
The GDP per capita in the Western Cape is second only to Gauteng, and is almost double that of the country’s poorer provinces.
According to the study, breaking away from South Africa’s currency and creating its own could enable the region to position itself as a base for higher value-added manufacturing.
“Depreciation of the new currency could allow the province to protect new industries while they gain a foothold in global markets.”
If this were to happen, the study said that it would have major ramifications for the political and economic situation in South Africa.
Author of the report, Dr Robert Hancké, an associate professor of political economy at the London School of Economics, said: “losing the wealthiest and politically most significant part of the country would be a devastating blow for South Africa.”
“A declaration of monetary sovereignty by the Western Cape would almost certainly lead to conflict with the other provinces in South Africa,.”
Would the pros outweigh the cons?
“Since the South African rand is not a strong currency – it has halved in value against the dollar since 2010 – the gains from an independent currency would likely be very small for the Western Cape,” the report said.
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