To understand the true value of the Rand – or any other currency – one must look at its purchasing power over time. As such, the value of goods a currency is able to purchase gives you the best indication of its absolute value. To do this you need to compare it to an enduring asset …
Much like the McDonalds Big Mac index, an analysis of the Rand’s value measured against the gold price does much the same. Gold prices may fluctuate, but supply is constant and the price completely standardised globally. This is known as the gold standard. When currencies are measured against the United States Dollar (USD), it doesn’t account for the relative weakening of the currency over time.
BAD NEWS FOR THE RAND
Therefore, if we look at the Rand versus the gold price since 1994, we get an accurate reflection of genuine value. Unfortunately, when you do, it doesn’t exactly make for good reading. Since 1994, the South African Rand has lost 98% of its value, reports Daily Investor. Or to put it another way, a R1 coin in 1994 is now worth a mere 2 cents in 2024.
This humbling figure mirrors the massive failure of the National Development Plan 2030, which anticipated 5.4% GDP growth from 2010 to 2030. Meanwhile, the economy has actually shrunk over the last decade and a half. Per capita GDP has fallen from R50 000 (2010) to R47 827 (2024). And is embarrassingly off the envisioned R120 000 per resident.
THE GOLD STANDARD
When using the gold standard, the Rand is directly convertible to a fixed price, says the SA Reserve Bank (SARB). One ounce (31 grams) of gold today is valued precisely the same as it has been in any other time in history. In 1994, the spot price of one ounce of gold was R1 308. Today, it is R61 199. Therefore, 31 grams of gold in 1994 will only buy you 0.66 grams of gold in 2024.
As such, in absolute terms, the value of the Rand has fallen by 97.9%. But all is not lost. Because, to provide perspective, the US Dollar has lost 89% of its value since 1994 on the same gold standard.
WHAT DO YOU THINK CAN BE DONE TO SAVE THE WEAKENING RAND?
Let us know by getting in touch in the comment’s section below …
