South Africa Exchange Control Has the magic moment arrived?


Circular 2/2020 published on the 27th of February 2020 by the Financial Surveillance Department of the South African Reserve Bank, caused a ripple of excitement for those of us who have been working under the confines of Exchange Control for our entire professional lives.

The following words introduced a whole new direction in controlling capital flows and foreign currency transaction to and from South Africa:

“This involves 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 the capital flow management measures and/or pose a high risk in respect of illegitimate cross-border financial flows.”

On closer inspection, could this be a false new dawn? I don’t think so. I think the change is irreversible and real.

1961 – The birth of Exchange Control

1961 saw the Baby Boomers in their absolute prime. It was a time of contradiction. The Russians build the Berlin Wall in that year, but also sent the first man into space. On the one hand they created physical isolation for the East Germans, but on the other hand they achieved the ability to see the world as a wall-less, borderless unified planet from space.

South Africa, under then Prime Minister Hendrik French Verwoerd, found itself being increasingly isolated from the world. This forced the country to withdraw into a protective financial cocoon. And from within this cocoon of self-inflicted political, cultural and commercial isolation, Government Notice R.1111 of 1 December 1961 was promulgated by the then National Party. It provided the basic legislative framework for Exchange Control as we know it today.

Progressive New World during the 80’s and 90’s

The new dawn that emerged in the world during the 1980’s and 1990’s brought freedom and enlightenment to most parts of the world. The Berlin Wall came down, Russia embraced “Glasnost” and “Perestroika” and the Cold War ended. The South Africa National Party Government released Nelson Mandela and other freedom fighters, South Africans abolished Apartheid and held free and fair elections. The word “Ubuntu” replace the word “Apartheid” in internationalised South African parlance.

In line with this progressive political and economic direction, the Exchange Control Regulations became more permissive, yet the basic premise on which the legislative framework of Exchange Control was created surprisingly survived this new dawn. I honestly did not think it would see the 2000’s.

Present position

Presently South Africans, including those “deemed” to be living abroad on a temporary basis, are prohibited from owning any sort of foreign assets and engage in a foreign currency transaction unless the State approves of such ownership or transaction or create a legislated exception to this blanket prohibition (the current negative bias framework). It’s akin to the Corona virus lockdown that is being applied at the time of the writing of this article. You are to remain at home unless a reason has been promulgated to create the exception to leave your home.

The Exchange Control lockdown have now been in place for almost 60 years.

Future position

During his budget speech in 2020 the Honourable Minister of Finance, Mr Tito Mboweni, rose like the phoenix from the ashes of this redundant piece of laager mentality policy and announced that the world of the currency control prison South Africans have been living in since the days of Dr Verwoerd will change forever.

As alluded to earlier, the current negative bias framework makes foreign currency ownership and transactions unlawful unless an exception exists in the regulations to allow for such ownership or transaction.

Let’s use an example: As a South African, it is unlawful for me to own any sort of foreign currency unless I can find an exception in the regulations which allows such ownership. Natural person individuals are allowed both an annual R1 million fully discretionary allowance every year to use as they like abroad and a R10 million per annum investment allowance upon receipt of a special tax clearance certificate from the South African Revenue Service. Individuals can only do this, because an exception to the general prohibition was enacted.

Circular 2/2020 proposes a framework where any foreign currency ownership or transaction is lawful unless specifically restricted. This is what is meant by the positive bias framework and it is not a small change, it’s a tectonic shift and well worth the ripple of excitement.

What exactly is changing and why?

What we are about to enter over the next 12 months, is an environment where it might seem on the surface as if many of the rules are still unchanged. The big change is that from now on a positive act is required to create and increase control measures, rather than a positive act to ease restrictions. In the constitutional democracy we live in, this is a massive move towards the ability to judicially test the legitimacy of Exchange Control measures forced upon South African citizens by their government.

So why now? What has given rise to the change in policy by the Government. In line with the minister’s typical honest approach to matters, he admitted that the Governments hand was forced into this action. The ability to freely participate in a global world of commerce, is hampered by disallowing citizens of your own country to participate freely in the world economy whilst traveling the world asking for direct and indirect investment into your own country by citizens of those other countries. The principle of reciprocity between nations need to apply.

The principles contained in The Organisation for Economic Co-operation and Development’s Code (the Code”) for the Liberalisation of Capital Movements and South Africa’s key role in negotiating the African free trade, simply made it impossible to persist with the current Exchange Control framework.

The absolute irony is that the Code was first adopted in 1961 – the same year, Government Notice R.1111 was promulgated.

What are the practical implications?

Yes, in theory, we have shifted the dial massively. But in practice some things will indeed look as if it is still the same and will disappoint the libertarians under us greatly.

If one were only to read Annexure E to the 2020 Budget speech, one would have gotten quite excited. Reading the full document from the Reserve Bank that followed, would have dampened that joy substantially. In the end, detail matters, so let’s look at a few aspects of the proposed changes expected to come into effect within the next 12 months.

Entity What changed
  • No approval will be needed for amounts up to R10 M per year. The R1 million travel allowance per year will stay in place, making it an R11 million free for all.
  • All natural persons will be treated equally. No distinction will be made between resident and emigrant anymore.
  • The transfer of more than R10 million per year will be allowed but will be subject to stringent verification. This requires FinSurv approval currently.
  • Non-residents will be able to borrow 50% of the funds that is needed to buy residential property from local banks.
  • Non-residents working in South Africa will be able to borrow money from local banks to buy residential property on the same terms as any South African person.
  • Invoicing and pricing would be permitted in foreign currency. Payment would have to be done in Rand.
  • Tourist operators (on application) would be able to price, invoice and receive payment in foreign currency.
  • Currency hedging onshore under 12 months will be allowed. Hedging for longer than 12 months will require additional documentation to be lodged.
  • Non-residents would be able to freely borrow from local banks to fund direct investment in the country.
Pension funds and institutional investors
  • Prudential limits would remain unchanged but are being debated. Expect some further relaxation here.
Local Trusts
  • Nothing will change


The long and the short for individuals will be that they would be able to take out as much money as they want subject to a bit of scrutiny in some instances. This in turn will mean that individuals will in future be able to bring money in and take money out with greater freedom. The global reporting systems and the changes in our tax legislation have enabled the South African tax authorities to still collect taxes on gains and income made on those offshore investments and offshore earnings.

Situs Tax in foreign countries, possible multiple probate processes in different countries and conflict of laws relating to testamentary freedom will become more and more of an issue as capital starts flowing freely. The more South Africans externalise their balance sheets, the greater the complexity that faces the estate planning and tax professionals.

Exporting inheritances, funding children living abroad, traveling abroad, donating funds to relatives living abroad and investing abroad will not be subject to Reserve Bank imposed restrictions. Blocked Rand accounts would become part of history lessons.


The status quo will be retained with regards to exporting or importing actual notes and coins and other forms of bullion (like Kruger Rands).

Crypto Currencies

This brings us to the big Excon nemeses: crypto currencies. A policy paper is in production to contain this hippy child of the monetary system. Let’s see if the containment measures work better than they did in 1961.


Companies in South Africa will not be allowed to shift their primary domicile offshore except under exceptional circumstances approved by the Minister of Finance.

Companies will still be able to directly invest up to R1 billion in their businesses abroad subject to adjudication by the Authorised Dealers and amounts larger than R1billion will simply be subject to an additional requirement of prior notification to FinSurv for verification and statistical reporting.

Loans between local companies and their offshore subsidiaries will also be very easy and hassle free.

Loop structures

Loop structures – where you set up an offshore company or trust to take up shares in a local company or buy local asset will still be illegal. I believe this will change as well. Many privately owned capital is held in offshore trusts already. Being able to invest into South Africa from capital already offshore (even if held in trust) would be beneficial to South Africa. Let’s rather welcome any direct investment into the Republic from wealth legally held by South Africa in offshore structures. What do we have to lose?

Intellectual property

The export of intellectual property to related offshore parties will still be controlled by FinSurv, but the sale of intellectual property to non-related parties will only require oversight by an authorised dealer. The authorised dealer will have to ensure that the transaction is a normal commercial transaction and that the price paid is armlength.


Local Trusts will still not be able to hold offshore assets. This is most probably an error in overly conservative thinking on the side of the fiscus. Restricting local trusts to own foreign assets simply invites loop structures as offshore trusts would be favoured to onshore trusts. Many South African families would use their local trust as preferred vehicles to invest offshore as well. Allowing the use of the local trust to invest offshore would in many instances obliviate the need for setting up expensive offshore trusts, and hence obviate the need to create loop structures.


Hopefully Exchange Control measures will be dismantled even more to assist South Africa to participate on an equal footing in the global village.

Franke Vaughan’s no 1 hit in December 1961 now rings loudly in my libertarian ears and I hum along joyfully:

“If I were a tower of strength, I’d look you in the eye and here’s what I’d say: I don’t want you, I don’t need you, I don’t love you anymore and I would walk out of the door.”

It looks as if we have found our tower of strength.


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