The stronger Rand - Why are people 'concerned'?

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MisterBigglesworth

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So after hearing about people being concerned about the Rand growing stronger each day, Im a bit lost. Im really out my depth here (dont understand this economic stuff), so please can someone explain why people are saying they are concerned about the Rand gaining in strength? I thought a stronger Rand was a good thing? So confused...:wtf:
 
You cant please everybody hey. It is good for us as consumers. Importing goods like electronics will become cheaper....but our exports will be hurt because the first world countries will look to other emerging countries now again to import similar goods against currencies that is weaker.
 
Ahhh...ok, I see....thanks for the info! Kinda in depth this...I mean...if the Rand one day had to get to R3 to the $ ... does this mean our economy basically stops growing cos we cant export our goods?
 
CrazyFig said:
Ahhh...ok, I see....thanks for the info! Kinda in depth this...I mean...if the Rand one day had to get to R3 to the $ ... does this mean our economy basically stops growing cos we cant export our goods?
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Not really as many of our minerals are traded in US dollars. There is economist which argue that a strong rand does not really hurt our economy.
 
Jola said:
Many, including myself, would argue that you need a strong rand for economic growth in the long term.
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I would agree with this. A stronger Rand also means more foreign capitol is flowing in. You have countries like the UK that has very strong currency and yet their economy is also very strong. You just need to diversify your economy also. Exports is great...but service industry can help also if you have a much stronger currency I think....or am I totaly wrong here?
 
ocleroux said:
I would agree with this. A stronger Rand also means more foreign capitol is flowing in. You have countries like the UK that has very strong currency and yet their economy is also very strong. You just need to diversify your economy also. Exports is great...but service industry can help also if you have a much stronger currency I think....or am I totaly wrong here?
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The UK's economy has been stagnant for a while now.

A strong currency does not necessarily translate into a strong economy. Japan being a case in point, where the Yen is ~100/$. The problem in this country is that the cost of stuff is not proportional to what it is around the world.
 
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Well, just look at two of the largest economies :

USA : Weak currency, going nowhere.

China : Strong currency, strong growth.

There are too many negatives attached to a weak currency, including high inflation which causes many structural problems.
 
Jola said:
Well, just look at two of the largest economies :

USA : Weak currency, going nowhere.

China : Strong currency, strong growth.

There are too many negatives attached to a weak currency, including high inflation which causes many structural problems.
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Japan's economy is larger than China. China's economy on the other hand may be growing faster, and their currency is currently undervalued (not strong, as per your post).
 
BBSA said:
Not really as many of our minerals are traded in US dollars. There is economist which argue that a strong rand does not really hurt our economy.
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Technically not correct. Even though its traded in dollars the mines still need to pay their bills in rands and with a strong rand the dollar buys less rands.

Basically strong rand good for inflation (imports), bad for GDP due to exports (as it is measured in Rands), bad for jobs.
 
A strong currency in a developing country is generally considered bad, because it stunts local growth, not just in terms of exports. It becomes cheaper to import a product, which was manufactured locally, and because people will always source the cheapest option, they will choose the imported option. Thus the local guys will lose their market share. If you take into account that everyones local income contributes to the countries GDP, which translates into economic growth, losing local income to imports is not a good thing. In developed countries, a strong currency has it's benefits of allowing a good free trade system, without the risk of damaging local growth, as the imports vs exports is reasonable well balanced. Personally I feel that developing countries place to much emphasis on the import/export process, instead of focussing on developing clusters of local infrastructure. But that's just an opinion. Use a bit of micro-economics to boost the macro.
 
Jola said:
Well, just look at two of the largest economies :

USA : Weak currency, going nowhere.

China : Strong currency, strong growth.

There are too many negatives attached to a weak currency, including high inflation which causes many structural problems.
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Also technically incorrect. The Chinese Yuan is pegged to the US dollar. The Chinese have massive reserves to enable them to do this. So I rather say China: Strong economy strong grwoth. US weak economy going nowhere
 
Saffa said:
Technically not correct. Even though its traded in dollars the mines still need to pay their bills in rands and with a strong rand the dollar buys less rands.

Basically strong rand good for inflation (imports), bad for GDP due to exports (as it is measured in Rands), bad for jobs.
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You will notice that if the dollar weaken the gold and platinum price usually increases. So in rand term us still earn the same.
 
Mike Hoxbig said:
Japan's economy is larger than China.
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That's in the process of changing around.

Mike Hoxbig said:
China's economy on the other hand may be growing faster, and their currency is currently undervalued (not strong, as per your post).
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It is strong (compared to the past) and still busy appreciating (partly due to pressure from others).
 
Mike Hoxbig said:
There are valid reasons for both sides of the argument in this thread: http://mybroadband.co.za/vb/showthread.php/163155-Rand-Dollar-Will-it-continue

Basically, a strong rand is good for consumers where goods are imported. A weaker (not weak) rand is good for export and economic growth in the long term.
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I just wanted to shed more light on this:

Strong Rand is Better For
South African consumers
Companies that need to buy components or equipment from abroad
Importers
Foreign companies that earn profits in South Africa
Companies buying products such as oil, petrol that are priced in US dollars.

Weaker Rand is Better For
Exporters
Foreign companies doing investment in South Africa
Companies that sell gold, platinum etc. that are priced in US dollars

As for which is better for economic growth, it's not clear. There are argument on both sides. A weaker rand would be better if the country wants to follow the Chinese model of exporting their way to growth. I'm not sure this would be a good approach as labor costs are much cheaper in China so the rand would have to devalue much more to make this a viable option.
 
ocleroux said:
You cant please everybody hey. It is good for us as consumers. Importing goods like electronics will become cheaper....but our exports will be hurt because the first world countries will look to other emerging countries now again to import similar goods against currencies that is weaker.
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Just one little problem. When the rand gets stronger how often does the items you buy on the shelve actually gets cheaper- not often. But just wait until the rand weakens then shops use that as excuse to raise prices + profits.
 
Mike Hoxbig said:
Japan's economy is larger than China. China's economy on the other hand may be growing faster, and their currency is currently undervalued (not strong, as per your post).
Click to expand...

Chinese GDP surpassed Japan's about a month ago, so now China is the 2nd largest economy. You are correct about the yuan being undervalued.
 
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