The South African Reserve Bank published a Financial Stability Department topical briefing on how trade uncertainty and geopolitical fragmentation can transmit into South Africa’s financial system. It argues that trade-policy uncertainty can weaken investor sentiment, drive exchange-rate volatility and capital outflows, and tighten domestic financial conditions, while geopolitical fragmentation can disrupt cross-border capital flows and payment rails and raise operational risks, including cybersecurity and artificial intelligence related vulnerabilities. Using a structural vector autoregressive model on monthly data from January 2003 to July 2025, the paper estimates that a 10% trade policy uncertainty shock is associated with an initial 0.06% rise in economic activity followed by a 0.08% decline after eight months, a 0.003% increase in 10-year government bond yields after about 15 months, a 0.08% real effective exchange rate depreciation on impact, a 1.6% decline in non-resident government bond purchases on impact, and financial conditions tightening to 0.018% after about 12 months. It also links payment system fragmentation to the growing use of financial infrastructure as a geopolitical tool, noting the freezing of approximately USD 280 billion in Russian reserves and the rise of alternatives such as China’s Cross-Border Interbank Payment System and Russia’s System for Transfer of Financial Messages, which could increase compliance burdens, valuation and liquidity risks, and cybersecurity exposure for South African financial institutions; the proposed resilience response includes trade diversification, stronger macroprudential monitoring and stress testing of cross-border exposures, and improved cross-border regulatory coordination and interoperability planning.
South African Reserve Bank 2026-04-21
South African Reserve Bank research finds trade policy uncertainty tightens financial conditions and highlights risks from fragmented payment systems
The South African Reserve Bank’s Financial Stability Department briefed on how trade-policy uncertainty and geopolitical fragmentation can transmit risks to South Africa’s financial system, including weaker investor sentiment, exchange-rate volatility, capital outflows, and disruptions to cross-border capital flows and payment rails. Using a structural vector autoregressive model, it finds a 10% trade-policy uncertainty shock has modest short-term effects on activity, bond yields, the real effective exchange rate, non-resident bond purchases and financial conditions, and warns that growing use of financial infrastructure as a geopolitical tool could raise compliance, valuation, liquidity and cybersecurity risks. It recommends trade diversification, stronger macroprudential monitoring and stress testing of cross-border exposures, and better cross-border regulatory coordination and interoperability planning.