From time to time, I see this sort of Rand lamentation appearing on my Twitter timeline:

…accompanied by much bewailing of the state of the nation.

And while the current state of the nation is worth bewailing, I’m not so sure that we should be as worried about the Rand.

Firstly, the ‘Old South Africa’ crusaders can calm down

I mean:

  1. Between 1973 and 1994, the Rand:Dollar exchange rate went from R0.70 to R3.55, making that a ±80% depreciation in value during those 21 years of Apartheid rule.
  2. Between 1994 and 21 July 2017 (today, at the date of writing), the Rand:Dollar exchange rate went from R3.55 to R13.03, making that a ±70% depreciation in value during the last 23 years of ANC rule.

So that’s just the math. And Apartheid ain’t winning.

A mathematical side-note

A lot of people get uncomfortable with the math. The trouble is the we talk about the value of the Rand. We don’t say ‘this is how many US dollars my Rand can buy me’. Instead, we talk about how much a US dollar costs in Rand terms. So let me rephrase those earlier points:

“Between 1973 and 1994, the Dollar:Rand exchange rate went from $1.42 to $0.28, making that a ±80% depreciation in value during those 21 years of Apartheid rule.”


“Between 1994 and 21 July 2017 (today, at the date of writing), the Rand:Dollar exchange rate went from $0.28 to $0.08, making that a ±70% depreciation in value during the last 23 years of ANC rule.”

But the Rand story is about more than just math

Let me take you back to an old favourite bug-bear post (“How Teens Can Become Millionaires“), in which mistaking “nominal” economic numbers for “real” economic numbers can make for some really bad conclusions.

Here is what you should know:

  1. Nominal numbers are just numbers.
  2. Real numbers tell you what you can buy with them.

Here is something else you should know: when it comes to exchange rates, people get far too comfortable with the word “real”. They tend to talk as though “real” money means US dollars, while SA rands are just, I dunno, for fun? Anyway, that awkward mix-up of terms is unfortunate because historical exchange rates are not “real” – they are nominal.

That is: the difference between an exchange rate of R0.71 to $1 in 1971 and today’s exchange rate of R13.03 to $1 is meaningless unless there is real world context.

Rand v Bread

Seeing as I started talking about loaves of bread in that post about teenage millionaires, I went searching for prices of bread. HarvestSA tells me that:

  • A loaf of bread in the 1970s set you back about R0.50.
  • A loaf of bread today will set you back about R13 (PicknPay told me this part).

Conclusion: in terms of purchasing power, things are virtually the same. You could buy a loaf of South African bread for just under a $1 in 1971 – and you can still buy a loaf of South African bread for $1 in 2017, (although you won’t get any change).

And I need to emphasise that the nominal story applies to incomes as well. So it’s not like a job that paid R50 a month in 1971 would still pay R50 a month in 2017. Although you might still earn the purchasing power equivalent of what R50 could have bought you in 1971.

Here’s a take-home message:

Money’s value is relative, not absolute.

Of course, this does mean that you have an issue is if you decided to keep all your money in a mattress. Because in that case, yes, you’ve lost most of the value of the rands in your mattress since 1971.

But my only response to that would be: why on earth would you take a bet on the relative value of money being the same as the absolute value of money?

That is both curious and absurd.

Finally: Different Growth Rates

The gradual depreciation of the Rand over time is not a function of mismanagement – it is mostly a function of South Africa having spent the last 50 years as an emerging market economy (with higher growth rates) and the United States being a developed economy (with lower growth rates).

Consider what happens when an economy grows: as it does so, you get more income for people, which makes for more spending, which makes for higher prices. So the rising tide of GDP is experienced across the board (although it can get a bit lumpy, with some sectors/areas experiencing the growth more strongly than others).

So let’s assume that an emerging market would grow at about 9% over time, while a developed market would grow at about 2%. I’ve indexed them to illustrate this difference, assuming that the US economy started at 100 in 1970, and the SA economy started at 71 in 1970, in order to get an implied exchange rate of R0.71 to $1 (seeing as purchasing power parity is meant to exist between countries – or, at least, that’s the theory).

Here’s a table of what the different growth rates would mean over time for the implied exchange rate:

Screen Shot 2015-08-14 at 12.13.41 PM

And it could taper off after 2015, seeing as our growth has turned anaemic.

Admittedly, there are some rather broad assumptions going on in there. Probably far too broad for a real economist to not scoff at.

However, still less broad than that nominal exchange rate table that keeps appearing on twitter.


To end, some key points:

  1. Do not keep money in a mattress, unless you live in a zero growth (or better yet, a negative growth) economy.
  2. Exchange rates are not simply a statement of faith in a country’s government. Instead, they are economic data points that may be influenced by governments, but are mostly a function of fundamental economic differences between two countries.
  3. Whenever someone presents you with a table of historical data, the words “nominal” and “real” are not just words. They mean things.

Have a great weekend.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at Also, check out the RA podcast on iTunes: The Story of Money.