#stronger than the rand
IT USED to be that when the US sneezed, we all caught cold. But now it’s China that has coughed, and the rest of the world – especially South Africa – is going down with a severe bout of Asian flu. US markets declined sharply along with almost others across the world on Monday
The sudden slowdown of China – the locomotive of the world economy – and Beijing’s consequent devaluation of the yuan were the main drivers of the global panic. They knocked the rand to its lowest level ever against benchmark currencies, including R14.07 to the dollar, and also wiped off hundreds of billions of rand from the JSE.
All economies are feeling the effect of China’s woes, but commodity-rich economies are hurting most. And of those, South Africa is among the worst hit. The extent of the contagion is also limiting our ability to hedge our bets. A weak rand boosts the value of our exports, of course, and some exporters are delighted now. But looming bear markets in China, the US and Europe are also diminishing the ability of international customers to buy our exports.
Quite drastic steps are now being contemplated. The Treasury has said it might enter foreign exchange markets to try to slow the rand’s fall. The Reserve Bank might be forced to raise interest rates to curb the runaway inflation the rand’s decline has precipitated. It faces a Hobson’s choice, as that would further slow an economy that’s already crawling.
The Treasury said the rand’s slide was broadly in line with the currencies of other emerging markets. And it’s true that South Africa is largely an innocent victim, like others, of global forces that are far beyond its control. But it also seems that we are particularly vulnerable to contagion.
The value of the currency is to a degree a measure of international confidence in the economy, and a number of factors, including chronic power shortages and policy uncertainties, seem to be undermining that confidence.
In the long run, a much better-run economy is needed to help insulate South Africa from the worst effects of such global turmoil.