Loading...

US accusations ignite currency chaos: South Africa’s Rand plummets amid explosive Russian arms scandal

TL;DR

  • South African currency hits an all-time low after the US accuses the country of supplying ammunition to Russia.
  • South Africa denies allegations, claiming no record of approved arms sale to Russia.
  • GDP projection revised to 0.2% contraction, potentially worsening due to electricity issues.

The South African currency’s exchange rate versus the U.S. dollar plunged to a new all-time low of ZAR19.51:US$1 on May 12, after the U.S. ambassador to South Africa accused the country of secretly supplying weapons to Russia. The rand’s depreciation by over 5% in just one week and more than 12% since the start of the year has raised concerns about the country’s economic stability.

U.S. ambassador Reuben Brigety alleged that Russia took possession of the weapons in late 2022, a claim that South African officials have quickly denied. The South African foreign affairs ministry summoned the U.S. official for a meeting on May 12, with spokesperson Clayson Monyela stating that his country has “no record of an approved arms sale by the state to Russia related to the period/incident in question.”

Dire consequences for South Africa

The South African rand’s depreciation could have severe economic consequences for the country, especially if the U.S. retaliates. Nolan Wapenaar, a co-chief investment officer of Anchor Capital, suggested that the U.S. government may respond by blocking South Africa’s access to American markets, which could lead to the loss of preferential duty-free market access under the African Growth and Opportunity Act (AGOA).

In addition, JP Morgan now expects South Africa’s gross domestic product (GDP) to contract by 0.2% in 2023, a significant downgrade from the previously projected 0.3% growth rate. The banking giant has also warned that its current account projection for the African country could worsen if the electricity situation is not resolved.

The situation has put the relationship between the United States and South Africa, a key partner in Africa, at risk. Despite South Africa’s neutral stance on the war in Ukraine, the Biden Administration hoped it could serve as a buffer against growing Russian and Chinese influence on the continent.

The South African government has reiterated its calls for a peaceful resolution to the conflict in Ukraine through diplomacy. However, recent displays of closeness to Russia have raised questions about the country’s neutrality. South Africa hosted Russian Foreign Minister Sergey Lavrov for talks in January and allowed Russian and Chinese warships to perform drills off its east coast in February.

The ongoing investigation into the allegations and the potential consequences for South Africa’s economy and international relations will continue to unfold. The outcome will likely impact the South African currency’s value.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

Share link:

Damilola Lawrence

Damilola is a crypto enthusiast, content writer, and journalist. When he is not writing, he spends most of his time reading and keeping tabs on exciting projects in the blockchain space. He also studies the ramifications of Web3 and blockchain development to have a stake in the future economy.

Most read

Loading Most Read articles...

Stay on top of crypto news, get daily updates in your inbox

Related News

Shiba Inu
Cryptopolitan
Subscribe to CryptoPolitan