The risk of sanctions: Summarised

By Bianca Botes, Director at foreign exchange experts, Citadel Global

The South African Reserve Bank (SARB) released its Financial Stability Review (FSR) highlighting that the risk of secondary sanctions has increased and should now be considered when evaluating the financial stability of South Africa. South Africa’s ‘impartial’ stance is being increasingly viewed as pro-Russian and recent events such as the accusations of South Africa providing arms to Russia and the claim that President Vladimir Putin would receive diplomatic immunity if he attended the BRICS summit are adding fuel to the fire.

As of 30 May 2023, the rand is trading at an all-time low ranging between R19,60 – R19,86 to the dollar. The outlook for the rand in the short and medium-term remains fragile and volatility is expected to ensue. The rand is trading around 26% weaker than a year ago.


There has been some speculation in markets as to what the consequences of South Africa’s close ties to Russia could be, and sanctions seem to be the obvious concern – in particular, sanctioning of dollar payments via the international payment system, SWIFT, as is the case with Russia.

Should South Africa be found to have assisted Russia in their war against the Ukraine, or that we are in breach of the imposed sanctions against Russia, we could be in line for similar economic punishment.


The risks around dealing with South Africa, a greylisted country that is not maintaining neutrality on the Russia-Ukraine war, has placed the rand under additional pressure, significantly contributing to the sell-off of local bonds and the additional risk premium that South African assets like the rand attract.

We have seen additional scrutiny by offshore banks when local companies make payments to foreign suppliers in recent weeks, causing a headache for many business owners.


In the FSR, the SARB notes that should secondary sanctions be imposed on South Africa, the immediate impact would be the tightening or termination of correspondent banking relationships and increasing costs of cross-border payments. This would also affect many countries in the South African Development Community (SADC) region who depend on South African banks for cross-border transactions.


The rand is the only BRICS currency which is part of the 18 currencies that participate in the CLS system – regulated and supervised by the Federal Reserve Bank of New York. The SARB notes that should secondary sanctions be imposed on South Africa, pressure could be placed on CLS to remove the rand from the system, which would expose South African banks to principal risks when settling foreign exchange transactions in CLS currencies, in turn increasing settlement risk for these South African banks.


South Africa’s trade relations with our largest trading partners, such as the United States (US) and United Kingdom (UK) are at risk. If secondary sanctions are imposed, it will make it impossible to finance any trade or investment flows, or to make or receive any payments from correspondent banks in US dollars and there is also a risk that sanctions could be expanded to include payments in euros or pounds.


The SARB states that sanctions “will be catastrophic for the South African economy and has the undeniable potential to trigger a financial crisis” for the following reasons:

  1. The South African financial system will not be able to function if it is not able to make international payments in US dollars. The impact of this on the economy and financial markets will be far-reaching.
  2. More than 90% of South Africa’s international payments, in whichever currency, are currently processed through the SWIFT international payment system. Should South Africa be banned from SWIFT because of secondary sanctions, these payments will not be possible.
  3. As a country with low domestic savings and a current account deficit, South Africa is highly dependent on foreign investment inflows to fund this deficit. South Africa is already plagued by foreign investment outflows as a result of its weak economic conditions and the recent greylisting. Jeopardising remaining investment inflows which come predominantly from the US, EU and UK, could therefore lead to financial instability.

In an increasingly globalised world, the interconnectedness of countries has become more and more pronounced, with fallouts in one country or region leading to fallouts in the countries with which they share trade ties and alliances. This ripple effect makes it very hard to navigate the volatile forex environment, placing increased importance on getting professional forex advice and risk management.