Sensible voices emerging on the rand

The rand.  Hotly debated and emotive for all.  Late last week we published a great short piece from Eustace Davie about the folly of calling for a weaker rand to boost economic growth.

Below is an article from Reuters printed last Friday reporting on comments from the CEO of the SA Chamber of Mines, Mzolisi Didiza.  It is good to see sensible calls for rand stability coming from prominent quarters, and from exporters no less!

Let these voices keep being heard loud and clear – SA doesn’t want or need a weaker rand, it needs a stable rand.

This means SA needs stable monetary policy which means interest rates should not be lowered too low and the central bank should avoid inflating the money supply.

S.Africa’s mines group against rand intervention

Fri May 14, 2010 1:57pm GMT

CAPE TOWN (Reuters) – South Africa’s Chamber of Mines (CoM), representing the country’s biggest gold and platinum miners, does not support calls for the rand to be weakened and pegged to the dollar, its chief executive said on Friday.

Trade unions and some manufacturers this week called for the government and central bank to intervene to weaken the currency, reiterating arguments that its relative strength — the rand gained almost 30 percent against the dollar last year — is hurting industry and export earnings.

But the chamber of mines — the voice for South Africa’s biggest export industry — said it would not back the campaign, although it wanted a more stable currency.

“I think the rand must allowed to find its own level. These kind of interventions, I don’t think they are sustainable … for me its a problem,” Mzolisi Didiza, CoM’s chief executive told Reuters.

“What I’ll advocate for is to have a predictable currency, because if you can predict and lessen the volatility it makes planning easier.”

South Africa is the world’s biggest producer of platinum and a big producer of gold, ferrochrome and coal.

A media report last year, later denied, that Economic Development Minister Ebrahim Patel was proposing to peg the rand spooked investors and briefly sent the rand sharply weaker.

While acknowledging it may be hurting some sectors of the economy at around 7.50 to the dollar, the government and central bank have warned against trying to intervene to set its level.

Last year, the gold sector earned the country about 48.7 billion rand in foreign exchange, making it the country’s second largest exporter behind platinum group metals, which earned 58 billion rand.

Systemic stability is key for sustained and prosperous real economic growth.  Fanciful theories about weakening the medium of exchange are ancient ideas that have failed for millennia dressed up as post-modern neo-economic wisdom.  They are fallacy and should be once and for all treated as such.

More sensible calls need to come from our business leaders that weakening the currency is an exercise in economic folly.

See other posts on the subject here, here, and here.