Friday, January 15, 2010

Why SA would find weak rand more of a burden than a boon

Published in Business Day, Thursday, January 14, 2010

Why SA would find weak rand more of a burden than a boon

by Richard Grant

THERE is an unfortunate tendency to blame currency strength for the relative slowness of SA’s recovery from economic recession. This assignment of blame is unjustified, but it is the mantra of the perpetual lobby for a weaker rand.

During the past year, the rand has risen against the dollar, the euro, and a trade-weighted basket of currencies. But the exchange rate with gold remains volatile and, though the five-year uptrend in the rand-gold price seems to be slowing, it is too soon to declare the rand “strong” by that measure.

The dollar, the euro, and all the other fiat currencies are, by definition, man-made currencies. This characteristic, which they share with the rand, makes them all susceptible to inflationary bias, especially during a recession.

As a standard by which to judge the rand’s performance, they are a slow heat. The commodity money — gold — shows them up.

Part of the volatility ... continue reading

Grant is professor of finance and economics at Lipscomb University in Nashville, Tennessee. He formerly taught at the University of the Witwatersrand, was chief economist at the Chamber of Mines and was a contributing editor at the Financial Mail.

Copyright © Richard J Grant 2010