How the rand punches far above its weight
The South African rand is one of the most traded currencies in the world – and despite the country being a much smaller market than its BRICS bedfellows, it’s able to match, if not defeat them in the trade game.
This is according to the 2016 BIS Triennial Central Bank Survey, which tracks the size and structure of the global foreign exchange markets.
The survey revealed that trading in foreign exchange markets averaged $5.1 trillion per day in 2016 (April) with the US dollar remaining the dominant vehicle currency, being on one side of 88% of all trades.
Trade in South Africa’s rand has declined since the last report in 2013, slipping from being the 18th most traded currency in the world (1.1% of all trades) to being ranked 20th (1.0% of all trades).
In terms of volume, South Africa makes up $51 billion in daily turnover – the same level as other BRICS nations Brazil ($51 billion), Russia and India (both $58 billion).
The Chinese yuan is the outlier at $202 billion – but remains relatively small, compared to its market size.
Total currency trade value and share
| # | Currency | Trade value ($bn) | Trade share |
|---|---|---|---|
| 1 | US dollar | $4 458 | 87.6% |
| 2 | Euro | $1 591 | 31.3% |
| 3 | Japanese yen | $1 097 | 21.6% |
| 4 | British pound | $650 | 12.8% |
| 5 | Australian dollar | $353 | 6.9% |
| 6 | Canadian dollar | $261 | 5.1% |
| 7 | Swiss franc | $243 | 4.8% |
| 8 | Chinese yuan | $202 | 4.0% |
| 9 | Swedish krona | $112 | 2.2% |
| 10 | Mexican peso | $113 | 2.2% |
| 20 | South African rand | $51 | 1.0% |
Trade share adds up to 200%, as two currencies are involved in each transaction
South African rand packs a punch
According to economic expert Jayson Coomer – the Rolling Alpha – when looking at South Africa’s trade turnover relative to the country’s GDP and Gross Trade, it is clear that the country punches above its weight class.
With turnover of $51 billion, and nominal GDP at $350 billion (UN, 2014), the rand has relatively high trade volumes, accounting for 15% of GDP (the 12 highest in the wotld).
Currency trade value as % of GDP
| # | Currency | Trade value ($bn) | Nominal GDP ($bn) | Turnover as % of GDP |
|---|---|---|---|---|
| 1 | New Zealand dollar | $105 | $199 | 53% |
| 2 | Swiss franc | $243 | $701 | 35% |
| 3 | Hong Kong dollar | $88 | $274 | 32% |
| 4 | Singapore dollar | $91 | $308 | 30% |
| 5 | US dollar | $4 458 | $17 348 | 26% |
| 6 | Australian dollar | $353 | $1 471 | 24% |
| 7 | Japanese yen | $1 097 | $4 602 | 24% |
| 8 | British pound | $650 | $2 989 | 22% |
| 9 | Swedish krona | $112 | $571 | 20% |
| 10 | Norwegian krone | $85 | $501 | 17% |
| 12 | South African rand | $51 | $350 | 15% |
Looking at the figure relative to gross trade – imports and exports – ($166 billion, 2014), it’s even stronger, ranking 11th at 31%.
When compared to other emerging markets, South Africa ranks as the most traded emerging market currency by this metric.
Currency trade value as % of gross trade
| # | Currency | Trade value ($bn) | Gross Trade ($bn) | Turnover as % of Gross Trade |
|---|---|---|---|---|
| 1 | New Zealand dollar | $105 | $70 | 150% |
| 2 | US dollar | $4 458 | $3 783 | 118% |
| 3 | Australian dollar | $353 | $396 | 89% |
| 4 | Japanese yen | $1 097 | $1 249 | 88% |
| 5 | British pound | $650 | $1 064 | 61% |
| 6 | Norwegian krone | $85 | $179 | 47% |
| 7 | Swiss franc | $243 | $552 | 44% |
| 8 | Swedish krona | $112 | $288 | 39% |
| 9 | Euro | $1 591 | $4 503 | 35% |
| 10 | Canadian dollar | $261 | $840 | 31% |
| 11 | South African rand | $51 | $166 | 31% |
According to Coomer, China’s low positioning on the list is the “elephant in the room”, as its trade is completely out of sync with the size of its economy.
“(This) suggests that the global traders must be using something as a proxy for the yuan trades that they can’t do,” he said.
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