That a commission has been appointed to investigate the fall of the rand against other currencies almost defies belief. And that this commission seems to have been taken seriously by many ostensibly intelligent South Africans is indicative of the delusional behaviour that will preclude the currency from any kind of sustained recovery.
Let me explain.
For those not aware of the Myburgh Commission?s terms of reference, they are to investigate whether illegal or unethical activities affected the ?depreciation of the value of the rand? between January 1 and
December 31 2001.
The rand is a commodity no different from mealies and is subject to the same laws of supply and demand. What the commission is effectively doing is complaining about these laws, and whether or not they are being exploited. By analogy, it is as though a commission has been appointed to investigate whether Mother Nature has acted illegally or unethically in causing gravity to topple a rotting tree causing injury to people struck by the falling debris.
The market is amoral. It punishes mistakes and it rewards competence. If a country?s macroeconomic or political fundamentals are weak, there will be a demand for that country?s currency exactly and precisely fitting with the market?s perception of its value.
If the market identifies, or even merely anticipates ? correctly or incorrectly, rightly or wrongly ? further weakening of these fundamentals, the price will fall again. And where the market identifies weakness, a fertile environment for speculators is created.
Speculators are neither good nor bad ? they are merely representative of market forces in action. It is pointless and naive to complain about their existence and ethics have nothing to do with this phenomenon. I would even argue that the speculators are doing the country a favour ? they are highlighting weak market conditions and forcing its citizens to face up to some harsh realities, or be punished further.
Simply put: If the rand, at a current value of about R11 to the dollar, is so unbelievably cheap, then why don?t dollar-holders snap it up? The market is always quick to spot a bargain.
The answer, of course, is that the rand is not cheap ? it is priced exactly in accordance with the immutable laws of supply and demand.
While the market may be amoral, a currency has an emotional representation of national pride and worth. The situation is similar to being told that a prize family heirloom will fetch R3 000 at an antique shop when its emotional value stands at tens of thousands. You can argue with the antique dealer until you are blue in the face and advertise your heirloom yourself at what you see as an acceptable level, but the market will prove the leveller.
For the South African Chamber of Business head Kevin Wakeford to lapse into sentimentality and suggest some sort of wrongdoing in the rand?s fall goes beyond bizarre and into the realm of the absurd. It is the realm of novelists and conspiracy theorists, not a body that stands for the immutable laws of economics.
Chris Van is an independent offshore investment specialist.