SZL (Eswatini Lilangeni): Meaning, History, Economy

What Is the Eswatini Lilangeni (SZL)?

The Eswatini lilangeni (SZL) is the national currency of the Kingdom of Eswatini (formerly known as Swaziland). One SZL is subdivided into 100 cents and issued by the Central Bank of Eswatini. Foreign exchange markets abbreviate the currency as SZL.

The SZL is pegged to the South African Rand (ZAR). As of January 2021,1 SZL (and 1 ZAR) is equal to roughly US $0.06.

Understanding the Eswatini Lilangeni

Swaziland was officially re-named Eswatini in 2018. Prior to this, the Monetary Authority of Swaziland introduced the lilangeni to replace the South African Rand at par in 1974. The two currencies have remained pegged at par since replacement.

The establishment of the Rand Monetary Area (RMA) in 1974 allowed Swaziland, Botswana, and Lesotho to issue currencies unique to their nations. Before the agreement, Swaziland participated in an informal arrangement among the same countries. Under the previous provision, only the South African currency circulated in the region. Through the agreement, the South African rand remained legal tender in all member nations and circulated alongside national money of the member nations. Botswana withdrew from the agreement in 1975.

In 1986, following the substantial depreciation of the rand, the countries replaced the Rand Monetary Area with the Common Monetary Area (CMA) to manage monetary policy. The CMA and the Southern African Customs Union work together to help member nations. The terms of the new agreement provided Swaziland (now Eswatini) additional flexibility in its monetary policy. 

The Eswatini Lilangeni and the Common Monetary Area

The new Common Monetary Agreement has given Eswatini several benefits. Under the CMA agreement, Eswatini had the option to abandon the lilangeni’s peg to the South African Rand. Though it has had the option to set its exchange rates, Eswatini has maintained the lilangeni’s peg to the South African Rand to date, in part to maintain price stability and ease trade with the other member states.

Unlike other CMA members, Eswatini is exempt from holding foreign exchange reserves sufficient to cover its circulating currency at the South African Reserve Bank, the central bank of the Republic of South Africa. Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities a nation's issued currency as well as to influence national monetary policy.

Swaziland, at the time, ceased to accept the South African rand as legal tender following the signing of the new agreement. In 2003, however, the country re-authorized acceptance of the South African rand to ensure unrestricted flow of funds in the areas. As long as the peg lasts, the value of the lilangeni and the economic status of Eswatini will remain tied to conditions in the South African economy, particularly concerning inflationary pressures.

At the same time, Eswatini’s interest rates can and do differ from those in South Africa. This difference gives the Central Bank of Eswatini latitude to cushion its economy from South Africa’s economic changes at the bank’s discretion.

The Eswatini Economy

Eswatini, located in Southern Africa, is one of the smallest landmass nations on the continent. A diarchy or joint monarchy rules the country. Many of the political and legal structures take a basis from the British and Dutch colonial rule of Southern Africa. As Swaziland, the country received recognition of independence in 1881 but would become a British protectorate in 1903. British control continued until 1968 when the area regained independence. 

Eswatini currently has a small developing economy with its primary trading partner being South Africa, the U.S, and the European Union. The nation has seen an economic slowdown in recent years, in part due to ongoing drought conditions. Nearly three-quarters of the population are subsistence farmers on the low-yielding land. 

In 2015, the country was suspended from the U.S. African Growth and Opportunity Act due to concerns over its ability to meet democratic standards around freedom of peaceful assembly laid out in the Act's eligibility criteria. In 2017, the U.S. government restored its eligibility for the program.

In the meantime, the country’s economic growth between 2015 and 2019 remained slow. According to 2019, World Bank data, Eswatini experiences a 2.2% annual gross domestic product (GDP) growth and experienced an inflation rate of 2.3%.