Increasing financial liberalisation since the collapse of the Bretton Woods system in the 1970s has rendered exchange rates volatile in both developed and developing countries. As for South Africa, it liberalised its capital account in March 1995 following the abolishment of the dual exchange rate system which had been in place since the mid-1980s. Currently, the South African rand is an important emerging market currency and the most significantly traded African currency. Understanding the causes of exchange rate volatility is important to policymakers. This follows the argument that the exchange rate movements play an important role in economic development in most developing countries. In South Africa, there is evidence which suggests that exchange rate volatility has significant effect on macroeconomic factors such as employment growth and trade.