Apartheid-era law kept alive which is holding South Africa back
VALR co-founder and CEO Farzam Ehsani has argued that South Africa should abolish exchange controls and replace them with a modern framework based on reporting, supervision, and enforcement.
Ehsani made his argument in an opinion piece responding to government’s proposed Capital Flow Management Regulations, which would replace the Exchange Control Regulations of 1961.
National Treasury and the South African Reserve Bank published the proposed regulations for public comment on 17 April 2026, with comments initially due by 18 May 2026.
Following criticism from the crypto industry and other stakeholders, the regulators extended the submission deadline to 30 June 2026.
Treasury said the draft rules would modernise exchange controls by reducing pre-approvals, increasing reporting, and improving surveillance of high-impact cross-border transactions.
However, the regulations also contain provisions that could allow government to restrict how much crypto South Africans may own.
They could also force investors to liquidate crypto assets into rands when their holdings exceed a yet-to-be-specified threshold.
The SARB and Treasury issued a statement on 15 May 2026 assuring that the intention was not to criminalise crypto ownership or undermine private property rights.
They also said the regulations would not be applied retroactively, but acknowledged that more details would only follow in a separate draft manual.
Ehsani argued that the debate should start with a more fundamental question: what exchange controls are actually trying to achieve.
He said they are usually justified on the basis that they control asset movements and prevent unauthorised capital exports, protect foreign currency reserves, and safeguard the financial system.
“These sound reasonable. But the first two objectives rely on a mental model that is increasingly outdated,” Ehsani stated.
“They imagine capital as something that can physically leave the country, like gold bars, banknotes, or bearer instruments crossing a border.”
They also imagine the rand as something the state must defend by spending scarce dollars, and private citizens or businesses converting rand into dollars as a direct loss to South Africa.
Rules for physical assets applied to new digital reality
“Most rands today are not physical notes and coins. They are digital entries on the balance sheets of South African banks. In fact, over 97% of South Africa’s money supply is digital,” Ehsani said.
“A digital rand exists because a South African bank records a rand liability to a customer. It cannot be placed in a suitcase. It cannot be loaded onto a ship.”
Crucially, it cannot exist inside a New York, London, Dubai, or Singapore bank account as rands unless there is a South African banking relationship behind it.
“So when someone says ‘money left South Africa,’ we need to ask: what exactly left?”
Ehsani said that when a South African buys dollars, their rands do not physically leave the country; they merely change ownership within the banking system.
From the individual’s perspective, value may have been externalised, but from a macroeconomic perspective, no capital was externalised. Only ownership changed.
Ehsani said this distinction matters because exchange controls often treat individual externalisation as though it were macroeconomic capital flight.
He also argued that private foreign exchange or crypto transactions do not automatically reduce the SARB’s foreign currency reserves.
“Foreign currency reserves are not the country’s private stock of dollars. They are official public-sector foreign assets held by the SARB and, in relevant respects, National Treasury,” he said.
These are used for external obligations, confidence, liquidity, and shock absorption, and not every time a private person buys dollars, pays a foreign supplier, invests offshore, or buys crypto assets.
“The SARB’s own policy is not to defend a fixed rand price. It may smooth disorderly market conditions, but it does not target a particular exchange-rate level,” Ehsani explained.
“So the idea that exchange control is necessary to prevent ordinary South Africans from draining SARB reserves misrepresents how the system works.”
Better rules, not no rules
Ehsani argued that exchange controls create friction and uncertainty and give officials discretion over lawful private transactions.
“It makes international investors worry about whether they can get money in and out. It makes South African entrepreneurs less globally competitive. It encourages structuring offshore,” he said.
“It tells the world that South Africa is not fully confident in its own investment proposition. And that is deeply damaging, because capital is confidence.”
Ehsani said that capital goes where it is welcomed, protected, respected, and allowed to move. “The question should not be: how do we stop people from taking money out?” he said.
“The question should be: how do we make South Africa a place where people want to bring money in?”
Ehsani said concerns about tax evasion, illicit financial flows, systemic risk, and financial crime should be addressed with targeted tools.
These include tax enforcement, anti-money laundering rules, beneficial ownership reporting, prudential supervision, and modern financial surveillance systems.
“Abolishing exchange controls would not mean abolishing oversight. It would mean replacing pre-approval, suspicion, and restriction with disclosure, reporting, supervision, and enforcement,” he said.
“It would signal that South Africa is ready to compete for global capital and is more attractive for foreign direct investment.”
Ehsani argued that such a framework would help entrepreneurs raise capital, encourage companies to domicile locally, and broaden South Africa’s tax base.
Exchange controls make South Africa look afraid
He said South Africa should move from a fear-based capital regime to a confidence-based capital regime.
“This is not an argument for no oversight. It is an argument for better oversight,” Ehsani said.
“It is an argument that South Africa can protect financial integrity without restricting lawful capital movement. It can protect the tax base without making citizens ask permission to invest.”
He added that South Africa could protect its financial system without telling the world that capital is welcome only if it leaves by permission.
“This policy was created for a different era. A world of physical bearer assets. A world of sanctions, isolation, and scarce reserves. It is now holding South Africa back,” he said.
Former President Nelson Mandela himself envisioned a South Africa without Apartheid-era exchange controls. In his 1996 State of the Nation Address, he said it would only be a matter of time.
“To improve the investment climate, our monetary authorities are reviewing, on an ongoing basis, the timing and pace of lifting existing exchange controls,” Mandela said.
“For us, it is not a matter of whether, but of when, these controls will be phased out.”
Ehsani said that, 30 years later, it was time to bring that vision to reality by abolishing exchange controls and replacing them with a modern framework.
“The future of South Africa will not be built by controlling exits. It will be built by becoming a country people want to enter.”
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