South Africans travelling abroad should not blame the rand for their lack of purchasing power — at least not lately. In mid-January 2016 a dollar exchanged for R16.80 and the pound for R24. Observers of the gyrations of the foreign-exchange value of the rand should know that the rate has had little to do with differences in inflation between SA and its trading partners. The rand has consistently bought less abroad than at home.
The exchange value of the rand with the dollar or pound has been weaker than its purchasing power parity equivalent rate of exchange ever since 1995, when the capital market was opened up, though with varying degrees of weakness. Had the rand simply followed the ratio of the SA consumer price index to the US or UK CPI since 1995, a dollar would now cost a mere R8. Since 1995 the difference between SA and UK inflation has been 3.3% a year, while the pound has on average cost 8.2% more in rand. ..
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