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Exchange Control – The Good, The Bad & The Ugly

Updated: Nov 24, 2020

Exchange Controls, or Financial Surveillance, as it is now known, has surprisingly reached the ripe old age of 81 years.

These Controls have been a long standing and a valuable ‘tool’ in the country’s economic policy ‘work shed’ and whilst sometimes controversial in their application, have been necessary to ensure that the often scarce foreign exchange reserves of the country, were preserved and utilised for the best benefit of the economy.

The economy, which for a variety of historical or political reasons, could not afford the disruption and uncertainty of no Controls at all. Amongst other things, it was important to ensure that foreign exchange was readily available to meet the country’s ongoing trade and currency funding needs. The administration and management of these ‘Controls’, over the years had the effect of creating many distortions in the economy, additionally impacting negatively on inflows, as well as outflows of Residents and Non-Residents funds, but was simply deemed a ‘necessary evil’.

It follows, that large scale movements of capital, offshore of South Africa, as well as the retention of foreign currency, was not automatically permissible and was subject to significant restriction, or where deemed beneficial to the economy, the subject of specific and detailed requests to the South African Reserve Bank (‘SARB’), for approval to transfer some of these scarce currency resources and indeed in some instances to introduce funds into the country. These ‘applications’, often for relatively straightforward purposes, were and are still submitted to the SARB via local Banks otherwise known as Authorised Dealers in Foreign Exchange and have increased over the decades.

Nonetheless, Exchange Controls have, particularly since 1995, been relaxed and revised and as commented on later in this piece, will likely result in the future management of cross border currency flows under the Exchange Control Regulations. Moving from the historic negative framework, where many transactions were not allowed, to a positive framework where all transactions will be allowed, with certain ‘capital orientated’ exceptions.

Before giving you a snapshot of future Financial Surveillance processes and to put things in perspective, I would like to take you on a short journey highlighting the life ‘phases’ of this constantly mutating mature system.



Exchange Controls were first introduced back in 1939, upon the outbreak of the second world war, but at that time they were known as the Emergency Finance Regulations.

South Africa was then a member of what was known as the British Sterling Area and as such were requested by the United Kingdom to introduce restrictions on the outflow of funds to non-Sterling Area countries. After the end of the second world war, these controls evolved to include transactions with Sterling Area countries and were based on similar Controls in place in the United Kingdom. During the post war years up until the late 1950’s these controls were not seen to be of major consequence, but by the late 1950’s there was evidence of a tightening of controls over resident parties.



A further tightening of controls occurred during 1961, flowing from a worsening internal political situation and related turmoil, which resulted in significant capital outflows from the country. At that time, enhanced Exchange Control Regulations were issued in terms of the Currency and Exchanges Act No. 9 of 1933 and Orders and Rules were simultaneously issued. The country’s current Exchange Control administration is still essentially governed by the same Regulations and Orders and Rules.

An early example of these Regulations was the decision to block the repatriation of the proceeds of sales of South African securities owned by non-residents. The unintended result of these actions was to allow a dual exchange rate system to evolve, which over the years mutated from a Blocked Rand mechanism to Securities Rand and then to Financial Rand. Under the Blocked Rand mechanism, the sale proceeds of non-resident owned securities were blocked in South Africa and had to be deposited in blocked Rand accounts held with the commercial banks. These funds could only be used for the likes of purchasing new shares locally, or long-term government bonds, municipal stocks, or public utility stocks (e.g., Eskom Stock). The proceeds of Bonds or Stock (usually held for 5 years), as and when sold, could be repatriated via the official exchange rate. It was however only a matter of time before a parallel market for blocked Rand was developed by London stockbrokers, primarily using South African quoted gilt securities, which in the normal course were ‘lent’ by local financial institutions, to facilitate the transaction, rather than being the subject of actual physical movement. The blocked Rand created, as a result of these transactions, was normally traded at a discount to the official exchange rate, thereby creating a dual exchange rate system.

In 1976, the blocked Rand mechanism was replaced by securities Rand, which allowed for the transfer of such balances between non-residents and trading of the currency through JSE brokers. During 1979, the securities Rand process was, in turn, replaced by a financial Rand system, which facilitated the implementation of a ‘floating’ rate for financial Rand, whereas the commercial Rand at that time was pegged to the Dollar. On the basis that the financial Rand, like its predecessors, traded at a discount to the commercial Rand, it was recognised as the ‘investment’ currency for non-residents to acquire assets in South Africa.

Essentially, it became the currency for capital transactions by non-residents, except for the inward transfer of loan funding and in addition specified and formally approved outward capital transactions by residents, e.g. emigration allowances and offshore corporate acquisitions, were also transacted via this mechanism. The Financial Rand system and consequently the dual exchange rate arrangements were discontinued during 1983.

During 1985, ever growing negative political events and related economic factors created significant concerns for offshore lenders and investors that all was not well in South Africa. The risks associated in doing business with South Africa ultimately caused Chase Manhattan Bank to withdraw credit lines and ‘call in’ all outstanding loans to the country. This decision created a ‘domino’ effect with other offshore banks.

The upshot of all this was that South Africa had to declare a moratorium on the repayment of debt, owing to offshore parties and subsequently instituted a standstill on the repayment of debt. Simultaneously, the financial Rand system was reintroduced.

The ‘Debt Standstill’ meant that local parties with debt obligations paid funds in the first instance, to special restricted foreign currency accounts with their bank, who in turn placed foreign currency with SARB. Eventually, consultations between South Africa and creditor banks resulted in a partial rescheduling of foreign debt repayments, with final debt arrangements concluded during 1994. All debt obligations to foreign creditors were eventually paid off by 2001. The financial Rand system was finally abolished in 1995 and because of that decision, exchange controls over non-residents were no longer applicable. In these circumstances, the sale of investments owned by non-residents in this country became freely transferable. Stringent Exchange Controls over residents nonetheless remained, but change was just around the corner.



An improved political situation, from 1994, allowed for opportunities to relax long standing Exchange Controls. It was well recognised that there was pent up demand for local institutions, corporates, and individuals to obtain greater foreign exposure.

However, the burning question at that time was whether these relaxations should be handled slowly, over time, or abolished in one big announcement, commonly known as the ‘big bang’ approach. As is self-evident today, the former notion won the debate and since 1995 there have been a raft of relaxations announced, although controls over resident parties still exist. A few key changes are summarised below:

  • Asset Swap transactions which allowed Institutional investors to swap some of their local portfolio for foreign securities and to transfer a percentage of local funds offshore. This process was gradually extended over the years to incorporate the likes of long-term insurers, pension funds and unit trusts and lasted until 2001.

  • From 2003 the first steps towards more formalised prudential regulation emerged and the foreign exposure limits for institutional investors to invest offshore continually increased. This eventually allowed for local individuals to diversify their local investment portfolios and gain offshore exposure, albeit via an initial Rand investment with their fund managers, who, in turn could use their so called prudential limits to acquire the offshore exposure.

  • By 2010, this prudential regulation was extended to local banks, to allow them to acquire foreign exposure up to a specified percentage of their liabilities, less shareholder’s equity.

  • During 1997, private individuals were permitted to initially remit up to R 200 000, from the country for offshore investment purposes. This foreign capital allowance was progressively increased over the years and today, individual taxpayers are permitted to invest up to R 10 million per calendar year offshore, for investment purposes, or if preferred, credit a resident foreign currency account.

  • By way of a further relaxation of controls, a single discretionary allowance (‘SDA’) of R 500 000 was introduced, to cover the likes of travel allowances, study allowances, gifts, donations, or maintenance payments. This concession gradually mutated over time, until today where the limit is R 1 million per calendar year and may be used to make cross border transactions for any legal purpose, without the need to provide supporting documentary evidence, except for travel purposes, where a passenger ticket needs to be presented.

  • In 1997 the amount which South African (Pty) Limited companies could apply to SARB for approval to remit, for investment in existing offshore entities or ‘new starts’ was increased to R 30 million per new investment. This limit was extended over the years to R 1 billion per new investment. An upper limit for these purposes was subsequently abolished in 2004, although requests stilled required up front SARB approval. By 2009 applications for transfers below R 500 million could be adjudicated by commercial banks (Authorised Dealers), within reasonable parameters, whereas those requests with a value in excess of R 500 million still needing to be submitted by banks to SARB for prior approval. The limit for commercial banks to consider and authorise these capital transactions was subsequently increased to R1 billion, during 2015.

  • JSE Listed entities as well as unlisted entities were also permitted to apply to SARB, for approval to establish a local subsidiary for the purpose of holding African and offshore operations, otherwise known as a ‘Holdco’, which entity would not be subject to Exchange Control restrictions.

  • Companies listed on the JSE were also permitted, during 2014 to make applications to SARB for secondary listings on foreign exchanges to facilitate offshore investment or offshore expansion opportunities.

  • Over the years, there have been many simplifications and relaxations to the Exchange Control Rulings, now known as the Currency and Exchanges Manual, pertaining to both Capital Account and Current Account transactions. In fact, the commercial banks (Authorised Dealers) are now permitted to formally authorise many types of cross border transactions, without the need to initially present an application to SARB, e.g. inward loans, payments in respect certain agreements, entered into with non-residents, emigration arrangements.

  • Exchange Controls have never negatively impacted trade transactions. Foreign currency will always be made available to meet normal and properly documented import transactions and exports will always be encouraged, with the proviso that the much-needed foreign currency will be brought back to South Africa within a period of 30 days from accrual. Either for conversion to Rand or for credit of a Customer Foreign Currency Account (CFC Account), for those companies entitled to have such a facility.


The Future

A modernised framework of ‘Controls’ was announced by the minister of Finance in his 2020 Budget speech, which, in brief would effectively result in a shift away from the traditional Exchange Controls (Financial Surveillance), in place for decades, to a Capital Flow Management Framework, which will regulate the cross border movement of capital, going forward.

It is proposed that this framework will be implemented within a period of 12 months and inter alia will result in new capital flow management regulations being promulgated, together with the implementation of relevant tax amendments. Essentially these changes will help to promote investment into and out of the country and remove constraints, as well as many administrative processes which negatively impact on the ability of entities and individuals to transact cross-border with South Africa. In the meantime, and until these new processes are finalised, current Financial Surveillance measures will remain in place and be rigorously administered.

A summary of the features of this proposed new framework, as published by National Treasury and SARB, is quoted below.

  • A shift from the current negative bias framework to a positive bias framework where all cross-border transactions will be allowed, except for those that are subject to capital flow management measures.

  • A move from Exchange Controls to capital flow management measures to regulate cross- border capital flows.

  • A more modern, transparent, and risk-based approvals framework.

  • Stronger measures to fight illegitimate financial cross-border flows and tax evasion.

  • Enhanced cross-border reporting requirements

There is still much work to be undertaken by SARB, to get to implementation stage, so please remember that it is ’business as usual’, for the time being.

BeztForex has been established to assist Companies, both resident and non-resident as well as individuals, in their global trade, foreign exchange and investment initiatives. We are also well resourced to provide guidance and direction on any Financial Surveillance (Exchange Control) related matter. Please get in touch with us if you need advice.

Herman Bezuidenhout - CEO

Keith White - Head Financial Surveillance

BeztForex (Pty) Ltd


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