Joseph Stiglitz's advice sounds similar to that of the old-time salesmen selling snake oil as a cure for everything.
(“Who’s in charge?”, Business, May 11). There is one important difference: the snake oil apparently did no harm; Stiglitz’s proposal that South Africa debase the rand will.
The debasement of the rand will assist exporters at the expense of consumers, savers and pensioners as long as the debasement is greater and more rapid than that of the currencies of our major trading partners, especially the dollar, in a currency-destruction race to the bottom.
The dollar has already been massively debased and is set to unravel. South Africa cannot compete. The United States’s monetary base increased from about $800billion to about $2.6trillion, a 325% increase in a matter of three-and-a-half years.
During the same period South Africa’s monetary base rose from R119.6billion to R154billion, an increase of 28.8%, which is already causing relatively high inflation. More will be seriously harmful.
The US Federal Reserve is suppressing price increases by lending to banks at an artificially low 0.75% interest rate. According to shadowstats.com, the real US consumer price index now is 6% to 10% and not the reported 2.3%.
South Africa should do exactly the opposite of what Stiglitz suggests and be the first country to have a 100% gold-backed currency and abolish exchange controls and legal tender laws (except for payments to the government) to allow traders, including exporters, to operate in any currency they choose, removing the clamour for rand debasement. – Eustace Davie