No Need To Fear The Rand

- Simon Brown

The rand is something South Africans obsess over. Hourly news reports on TV and radio will include the exchange rate, and almost every political or economic event will also be accompanied by how the rand responded. But does it deserve this level of attention and concern?

Firstly, it is important to remember that the rand is very volatile to the downside with ‘crashes’ an almost common occurrence. The sense, when speaking to most South Africans, is that our currency is a one-way bet for massive weakness.

Yet, while weakness is assured, it will actually be gradual over time. In a perfect world, one currency will weaken against another by the difference in their inflation rates. That means that if our local inflation is 5% and the US has an inflation rate of 1%, we should see the rand 4% weaker against the US dollar every year. This weakening via inflation keeps products similarly priced.