In what has been described as the great comeback, the South African currency, the rand, has fought its way out of the trenches of decline and has given credence to the soundness of the government's economic policies. In a gritty performance, the rand has erased most of its mysterious losses during its annus horibillis (2001) when it plunged 37% against the US dollar. At its worst, it traded at 13.85 to one dollar in December 2001.
Since the exposure of dubious dealings in January 2002 and the establishment of a commission of enquiry, the rand has risen steadily, clawing back all of the 37% it lost, with change to spare. By January this year, exactly one year after the revelations of dubious dealings, the rand had reached a 16month high. It had recovered 41% of its value, trading now at 8.50 to the dollar.
Against a trade weighted basket of major currencies, the rand had gained 31%. From the world's worst performing currency at the beginning of 2002, it has now become the best, firmly establishing itself as the emerging market currency of choice among speculators and investors.
"The rand is back where it belongs," market analysts now say. But the mystery of its plunge is still to be adequately unravelled after an inconclusive and confusing report by the Myburgh Commission of Enquiry.
Contagion from Zimbabwe is one of the most frequently cited reasons for the 2001 plunge. But that has come full circle. Despite the South African government's refusal to sort out Mugabe as demanded by Britain and its allies, the rand has continued its march.
In fact on the day, last year, that the South African president, Thabo Mbeki, told opposition leaders point blank that his government's policy towards Zimbabwe was not going to change, effectively telling them to go hang, the rand made impressive gains. Since then there has been bad press about South Africa throughout, ranging from Aids to rape.
So with no "good news" to guide sentiment, what has led to the rand's gain?
Of credible note is the raising of the "repo rate" by the Reserve Bank to 13.5% -- the rate at which it sells currency to the banks. The rate has gradually been raised by 4%, from 9.5%. The interest rate, as quoted by the banks, now stands at 17%. This was done largely to stem imported inflation caused by the rand...