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Short-Term Capital Flows and Economic Crises$
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Stephany Griffith-Jones, Manuel F. Montes, and Anwar Nasution

Print publication date: 2001

Print ISBN-13: 9780198296867

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780198296867.001.0001

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Capital Flows and Policy Responses in South Africa in the 1990s

Capital Flows and Policy Responses in South Africa in the 1990s

(p.226) 10 Capital Flows and Policy Responses in South Africa in the 1990s
Short-Term Capital Flows and Economic Crises

Brian Kahn

Oxford University Press

After it successfully shifted to democracy, the reintegration of South Africa into the global markets in 1994 ensued about ten years of restricted access to capital markets and international money. After access to these markets were again granted, this led to the rise of capital inflows which posed problems that were similar to those experienced by other developing market economies. Although constraints were relaxed and opportunities for the Reserved Bank to regain its stock of foreign exchange reserves came about, the surge of capital inflows were short-lived because of the problems encountered. In January 1997, however, foreign capital flows in South Africa experienced a significant increase that led to the appreciation of the rand. As such, various macroeconomic policies and those of liberalization affected capital flows to South Africa. This chapter examines how these policies involve the Reserve Bank’s exchange rate policy which favours strong and almost overvalued currency in reducing inflation.

Keywords:   South Africa, capital markets, Reserved Bank, rand appreciation, foreign exchange policy, liberalization, macroeconomic policy, strong currency, inflation

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