The rand’s true value is around R7 to the dollar, rather than the current level in excess of R17.
This is according to SA Reserve Bank Governor Lesetja Kganyago, speaking at the Drakensberg Inclusive Growth Forum, organised by the Kgalema Motlanthe Foundation.
Calling attention to the relationship between the strength of the currency and the growth of the economy, he said, “back in the late 2000s, it was often argued that South Africa’s real exchange rate was too strong and too volatile. This indicator has since become significantly weaker and less volatile.”
However, this had not been accompanied by consonant growth.
Nevertheless, he continued: “If you consider indicators of purchasing power parity, such as the simple Big Mac Index, you see that for the rand to have the same buying power in the US as it does here, the exchange rate would need to be around 50−60% stronger.”
Measures of relative currency strength would put the rand at some R7 to the dollar.
The World Bank has argued that the rand should have traded at R7.40 to the dollar in 2024, but had traded at R18.30.
This was in reference to the World Bank’s purchasing power parity conversion factors.
Kganyago said that the currency probably embodies concerns about other factors in the economy. “If a country looks good, investors are impressed, and the currency appreciates. By the same token, if they lose confidence, they sell.”
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