Breakaway Currencies

We’ve explored nine different scenarios in which we’ve imagined a region has decided to create a new currency. Read more about breakaway currencies or select another scenario from the list below to view in more detail.

In collaboration with Dr Robert Hancké of the London School of Economics, the UK’s No. 1 retail forex provider,1 IG, has considered...

What happens if the Western Cape leaves the South African rand and creates its own currency?

Breakaway region Western Cape

Parent country South Africa

Old currency South African Rand (ZAR)

New currency Cape Rand

Western Cape map image

Creating its own currency would allow the Western Cape to heighten existing economic advantages: but at what cost to the rest of South Africa?

Why might the Western Cape create its own currency?

  • It is the most economically developed region of South Africa and has one of the highest regional GDPs per capita
  • The South African rand is used within both developed and developing regions of South Africa
  • In contrast to other parts of South Africa, the province is not reliant on mineral resources that follow global commodity cycles (eg diamonds, gold, coal)

Why is the position of the Western Cape strong?

  • It is administratively and politically the most developed area in sub-Saharan Africa
  • It has the largest share of non-resource-based exports in South Africa
  • It has a very good education system and is home to the some of the country’s best universities
GDP per capita by region 2017 (rand, thousands)   sources: 1 2
Western Cape
Free State
Northern Cape
North West
Eastern Cape

What could happen... Western Cape Province?

An independent currency could allow the region to position itself as a base for higher value-added manufacturing

Depreciation of the new currency could allow the province to protect new industries while they gain a foothold in global markets South Africa?

It is unclear how South Africa would cope with losing a region that is both critical to its economy and home to all its major governmental institutions

Such a dramatic change to the political and economic status quo would likely have huge ramifications throughout the country, and beyond

Currency background

Change in value of South African rand (ZAR) since 2000, based on SDRs per currency unit   source

Change in value of South African rand (ZAR) since 2000

Dr Robert Hancké

“Losing the wealthiest and politically most significant part of the country would be a devastating blow for South Africa.”

What would the political impacts be?

Since South Africa would effectively lose its administrative, judicial, scientific and political centres, a complete disintegration of the South African political economy cannot be excluded

A declaration of monetary sovereignty by the Western Cape would almost certainly lead to conflict with the other provinces in South Africa

South Africa’s Houses of Parliament, which have been located in Cape Town in the Western Cape since 1884. (photo: Janek Szymanowski / Wikimedia CC BY-SA 3.0)

Would the pros outweigh the cons?

Since the South African rand is not a strong currency (it has halved in value against the dollar since 2010), the gains from an independent currency would likely be very small for the Western Cape

Dr Robert Hancké is an Associate Professor of Political Economy at the London School of Economics. His research interests include the political economy of advanced capitalist societies and transition economies as well as macroeconomic policy and labour relations.

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