EXCHANGE RATE POLICY

South Africa has a floating exchange rate system. This means that the rand exchange rate is basically determined by the forces of demand and supply in the foreign exchange market. The South African Reserve Bank can, however, participate in this market by buying or selling other currencies. At present the policy is generally to stay out of the market and to allow market forces to determine the exchange rate.  In recent years, however, the Bank has been building up foreign exchange reserves and this involves the purchase foreign exchange from the market. Such activities, by increasing the demand for foreign exchange, can influence the exchange rate. The exchange rate, however, is not the objective or target of the Bank. The decisions by the Bank regarding reserve accumulation should rather be seen as management of international liquidity, not exchange rate policy