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

…accompanied by much bewailing of the state of the nation, as well as accusations of “plundering” and “lost value”. Usually made by whatever the South African version is of angry white republicans from Iowa.

eye roll


I mean, firstly:

  1. Between 1973 and 1994, the Rand:Dollar exchange rate went from R0.70 to R3.55, making that an 80% depreciation in value during those 21 years of Apartheid rule.
  2. Between 1994 and 2015, the Rand:Dollar exchange rate went from R3.55 to R12.16, making that a 70% depreciation in value during the last 21 years of ANC rule.

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

But more importantly, the story is flawed.

Let me take you back to a Friday post from two weeks ago (“How Teens Can Become Millionaires“), in which mistaking “nominal” economic numbers for “real” economic numbers can make for some really bad conclusions.

Here is the trouble:

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

Here is some other trouble: when it comes to exchange rates, people get far too comfortable with the word “real” – talking as though “real” money means US dollars, while SA rands are just, I dunno, for fun? Anyway, that awkward conflation 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 R12.16 to $1 is meaningless unless there is real world context.

And seeing as I started talking about loaves of bread in that post from two weeks ago, 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 R11.

Conclusion: in terms of purchasing power, things are basically the same. You could buy a loaf of South African bread for $1 in 1971, and get some change – and you can still buy a loaf of South African bread for $1 in 2015, and get some change (albeit slightly less change).

And I need to emphasise that the nominal story applies to incomes as well. So it’s not like a job that earned R50 a month in 1971 would still earn R50 a month in 2015 – although it might still earn the purchasing power equivalent of what R50 in 1971 could buy you.

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 misrule – it is mostly a function of South Africa being 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 in the short term, 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

Again, math.

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 a statement of faith in a country’s government – they are economic data points that are sometimes a bit influenced by governments, but mostly, they are 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 the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at