EMERGING MARKET CURRENCIES
Rand that does not matter may be good
Every time headwinds hit emerging markets, the rand gets hammered — but this is changing, writes Hilary Joffe
We tend to think of the rand exchange rate as one of the world’s wildest and indeed, volatility this year has been at its highest since the global financial crisis. But while the swings may have been wild, daily trade in the rand foreign exchange markets has actually fallen over the past three years. And the rand is a lot less important in global forex markets. Whether that’s a good thing or a bad thing depends on your perspective. For ratings agency S&P Global at least, the rand’s diminishing importance is a concern — it cited the decline in the proportion of rand turnover in the global forex market as a reason for its decision to downgrade SA’s local currency rating earlier this month. The downgrade, which narrowed the gap between SA’s local and foreign currency ratings from two notches to one, did not come as a surprise. But the rand turnover factor caused much puzzlement, especially since the decline — from 1.1% of global forex trading to under 1% — was not exactly dramatic.The ...
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