Thu 24th May 2012
In this post I aim to answer the question: what are the advantages and disadvantages of the rand versus the pound? This might be of interest if you’re planning to emigrate to South Africa, and want to get the best possible exchange rate before you go. It might also be useful if you’re already in Johannesburg, and want to repatriate funds back to the UK.
In short, the advantages and disadvantages of the GBPZAR are as follows:
1. The South African rand is highly volatile, because its value depends so much on demand for commodities. This is an advantage on the one hand, because it means it’s possible to enjoy a great exchange rate without a long wait (as compared to say, if you’re changing pounds to euros, wherein waiting for the pound to climb is like watching the tides.)
2. Of course, on the other hand, volatility can also work against you. It means opportunities to get a good rate will not last long, while making it that much tougher to predict the rate in the medium term. If for instance you’re emigrating to South Africa, and intend to move a large sum, the volatile rand means that estimating your exchange rate is a challenge. This is a distinct disadvantage.
How to overcome these disadvantages?
Fortunately, there are tools available to help you minimise the disadvantages of changing South African rand. For instance, if you plan ahead, you can both take advantage of good exchange rates in advance (meaning you don’t have to accept the rate available at the last minute), while putting in place a forward contract to protect you against future declines.
For example, if you intend to move money to South Africa several months from now (or back to the UK for that matter), look into the exchange rates today. You can use Google Finance to do this (just enter GBPZAD into the search bar) or get in touch to find out what’s going on with the rate. Here, you can find out if the rate is good or bad compared to recent weeks, and decide if now might be a good time to transfer the money, even if you don’t need to for some time.
In addition, if you like the present rate but don’t want your money in your South African account yet, you can also put in place what’s called a forward contract. This enables you to lock in the present rate without transferring your money, so that when you finally do, you can get the rate you liked at the time. This can help offset the disadvantages of the volatile rand.
I hope this post has been useful.
If you have an questions not answered here, or would like to find out more, don’t hesitate to contact us at foreign exchange specialist Pure FX. One of our specialist dealers would be delighted to provide an in-depth response to your query, free of charge.