Government may fix the Rand

To peg a currency is quite easy. If you want your currency to devalue you buy some other currency and pay with yours. If you want to add value then you sell your foreign currency reserves and accept payment in your own currency. It's not rocket science. Many countries do this to not so much FIX their currency to another but to add stability, remove the big fluctuations. The Swiss Franc is controlled like this.

You will probably find the Rand will be pegged between R11 to R12 to the Euro IMO. The Euro is our main trading currency and it makes sense to try and stabilise the Rand so that all importers and exporters will know more or less what the will have to pay or receive in the short to medium term.

It also means that when Brazil has a bad coffee crop the Rand doesn't go for a ball of chalk just because South Africa is also an emerging economy. Just means you will pay more per cuppa. :(
 
pmbellis said:
It doesn't matter WHAT they freeze it at ... the results will be the same.

If I can get R10 for my $1 at the bank, and R15 at the "corner-shop", who will the average bloke deal with?
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Lol do you know how dumb you sound? XD
 
Sounds like a rather poor idea to me - although I seriously doubt it'll go anywhere. Fixing the currency can be useful when the economy being linked to has a similar macroeconomic policy. If it doesn't, movements in their economy will cause distortions in your own. The greater the size of the their economy vs. yours, the greater the distortions.
 
Claymore said:
Sounds like a rather poor idea to me - although I seriously doubt it'll go anywhere. Fixing the currency can be useful when the economy being linked to has a similar macroeconomic policy. If it doesn't, movements in their economy will cause distortions in your own. The greater the size of the their economy vs. yours, the greater the distortions.
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boramk said:
Lets hope it doesn't. The rand already weakened at this news
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It has been DENIED already.
So NOT gonna happen.
http://www.fin24.com/articles/defaul...518-25_2558098
 
evilstebunny said:
Strange. The moment I read this a tune popped into my head.

It goes like this - 'Zim, Zim, Zim .. Zim .. Zim .. Zim ....... ZIM!!!
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Exactly what was going through my mind and then I got to post 11 and I see I wasn't alone !
 
pmbellis said:
Actually, no, I don't. So, instead of insulting me, educate me.
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.....

pmbellis said:
It doesn't matter WHAT they freeze it at ... the results will be the same.

If I can get R10 for my $1 at the bank, and R15 at the "corner-shop", who will the average bloke deal with?
Click to expand...

So you are telling me, it's fine if the government fixes our exchange rate, because in the end its cheaper to go to another place?
 
Kosmik said:
How can one fix the exchange rate? Isn't currency almost a willing buyer, willing sellfe method? I'll sell my rands @ such a amount of dollars or I'll accept so many rands for a dollar etc?

Eco guru's, explain please.
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It is, which means if the government wants to fix the rate at a level where the Rand's stronger than the natural equilibrium it'll need the forex reserves to support this which it doesn't have, i.e. it'll have to sell Dollars, Euros etc and buy Rands. If it wants to fix it at a weaker level then it has to sell rands and buy forex which is easier to do since it can 'print' Rand. That's essentially what China does.

MadMailMan said:
To peg a currency is quite easy. If you want your currency to devalue you buy some other currency and pay with yours. If you want to add value then you sell your foreign currency reserves and accept payment in your own currency. It's not rocket science. Many countries do this to not so much FIX their currency to another but to add stability, remove the big fluctuations. The Swiss Franc is controlled like this.

You will probably find the Rand will be pegged between R11 to R12 to the Euro IMO. The Euro is our main trading currency and it makes sense to try and stabilise the Rand so that all importers and exporters will know more or less what the will have to pay or receive in the short to medium term.

It also means that when Brazil has a bad coffee crop the Rand doesn't go for a ball of chalk just because South Africa is also an emerging economy. Just means you will pay more per cuppa. :(
Click to expand...

Its easy in theory but in practice if you don't have the forex reserves to support your peg its not going to last long.
 
boramk said:
..... So you are telling me, it's fine if the government fixes our exchange rate, because in the end its cheaper to go to another place?
Click to expand...

eh? :confused:

Did you actually read what I wrote?

1.) No, I'm totally AGAINST fixing the exchange rate.

2.) IF the exchange rate gets fixed, it would take enormous foreign currency reserves to keep it "fixed", and the further the parent economy moves away from ours, the more reserves it would take ... eventually there won't be enough.

3.) When the reserves eventually do run out, the "official" rate will drift away from real values and people & businesses will naturally attempt to exchange currencies at a rate most advantagous to them. So, say the official rate is R11/$1 and the "real", or blackmarket rate is R12/$1, then when buying $, one will go to the official suppliers, but when selling $ one will go to the blackmarket vendors. All this will have the net effect of pushing the gap wider.

I don't pretend to have any real knowledge of economics, and I may very well be totally wrong in my analysis ... if so, feel free to educate me, I welcome it.
 
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