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How weak is the rand? Put another way, how competitive is the rand? By my calculation, the currency was at its weakest, most competitive — most undervalued — in late 2001. At R11.98 to the dollar, or a mere 8.3 US cents for a rand, it was selling for about 23% less than its purchasing power parity (PPP) equivalent.
If the dollar-rand exchange rate had merely compensated for differences between higher SA inflation and lower US inflation, the dollar would then have cost no more than R7.70.
It was an expensive time for South Africans to visit New York, and a bargain for Americans and Europeans travelling in SA at that time.
If differences in inflation were the only force driving the exchange rate, we would now (in August 2018) be paying less than R10 for a dollar.
A real exchange rate value of 100 would indicate an equilibrium for foreign traders, one where what is lost on the inflation front is fully made up with exchange rate weakness. The rand has been mostly undervalued since 1995 ...
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