Minister of Finance Trevor Manuel on Thursday said trying to determine the fair value of the rand is akin to searching for the “holy grail”.
The fair price of the rand, he told business students at Wits University, is “the price that’s just traded”.
He said the price of a currency is “merely a price reflecting the value of goods and services in the international markets”.
He referred to the divergent views held by private-sector economists on what the fair value of the rand should be, saying they differ vastly — sometimes by as much as about 27%.
“That doesn’t help me as a policy maker — but it’s there,” he quipped.
Referring to the large fluctuations in the rand over the past few years, Manuel pointed out that South Africa has not been alone in this experience.
Throughout the Nineties, he said all the focus had been on the dollar.
He added that people tend to look at the value of the rand against a single entity — namely the dollar.
Asked why South Africa does not peg the rand, he responded: “If you peg the currency, you need the reserves to do it. But when the peg gives, then your reserves go.”
He said the country’s fiscal policy remains firmly anchored in the government’s inflation-targeting framework.
On the effects of a strong rand on the economy, he said there are two sides.
“Certainly a strong rand creates both winners and losers.”
While the mining and manufacturing sectors have suffered as a result of the rand’s strength, importers and retailers have benefited, as the strong rand has helped push down inflation and enabled interest rates to fall.
The minister added that competitiveness in the economy should not be determined by the nominal exchange rate but should be driven by real efficiency gains.
Turning to the country’s economic prospects, Manuel said there is a realisation of the strength in the country and a “great optimism that we will pull through”.
“But we can do this through our ongoing commitment to democracy and wealth creation,” he added.
“I believe that we will transcend in the future to a higher growth rate. It looks like we’re touching 4% and can do even better than that,” he stated, adding that manufacturing is gaining renewed momentum. — I-Net Bridge