Sunél’s Blog | A lesson in waiting for the pendulum to swing

Sunél Veldtman, | 28 May 2021

South Africans are obsessed with the value of our currency. It determines our moods, sometimes even more so than our rugby results. When was the last time you checked the value of the Rand against the dollar?

At below R14 to the US Dollar, the Rand is at a better level than five years ago. Yes, you read correctly. The Rand has appreciated against the US Dollar over the last five years. This five-year period stretches from the aftermath of Nenegate – when former President Zuma unexpectedly fired the respected Minister of Finance – to now. Immediately after Nenegate, the Rand reached an all-time low of nearly R16 against the US Dollar but then recovered again as the dust settled.

During the initial lockdown last year, the Rand again dropped to R19/US Dollar but subsequently recovered due to strong commodity prices, a global recovery and our strong balance of payments.

What I am trying to illustrate here is that projecting that the Rand will depreciate, regardless of where it is trading, is wrong. Even if you’re despondent about the government, the corruption or our economic fundamentals, these factors don’t determine that the direction of the currency is a straight downward trajectory.

Eventually, you may be right – the Rand will likely depreciate in the long run. But the long run can be very long if your starting point is a blowout.  The 10 years following December 2001 (the previous blowout where the Rand hit R13.61), saw the currency appreciate by 1.3% per year, after briefly touching R6 in 2005. You had to wait fifteen years before the Rand depreciated again to that same level.

In the ten years after the 2020 pandemic lockdown, is it likely that the Rand can again appreciate?

In economics, there are balancing factors. When the currency depreciates dramatically, people stop importing expensive stuff and our exports fare better. A year after the first pandemic panic, the South African trade surplus is at record levels; meaning that the difference between our exports and imports are at record levels. It is one explanation for the strong currency.

Take this as a reminder that dramatic short-term pendulum swings are most likely followed by swings to the other side. It’s how economics work.

But note, I am not making a prediction about the returns from offshore investments, which should not be determined by your opinion of the Rand anyway. I am making a case for pausing when the currency or our investments blow out. For not acting when the pendulum is at its furthest point and we are tempted to act in response to the panic of a blowout. Pausing gives us time and the grace often inherent in it. Wait. For the equilibrium to return.

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