WIDEOPN-X5
Well-known member
South Africa’s “real” currency value
In the USA, a Big Mac sells for $4.79 as of January 2015 – in South Africa the price is $2.13 (R25.50).
This means that a South African in the USA would expect to pay R57.46 for the same product that costs R25.50 locally.
In order to reach pricing parity, the value of the South African currency would have to sit at R5.32 to the dollar.
This shows that the rand is undervalued by 57%.
Data from the World Bank points to similar PPP values, showing that between 2010 and 2014, South Africa’s currency carried an average PPP trade value of R5.11 when purchasing its selected basket of goods.
According to the Economist, a fairer measure of a currency’s fair value would be to look at the relationship between prices and GDP per person.
“The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation,” it said.
According to the World bank, South Africa has a GDP per capita of $12,506.70 (in international or PPP dollars), versus the US GDP per capita of $53,042.00.
THIS!!!:RedNo::RedNo::RedNo: This right here is what irks me. What are the drivers that cause our currency to be undervalued by 57% as is indicated about in bold???
I understand that if the Rand would be 57% stronger ie at sat R 5.32 to the US$1.00 then that would punish say the mining sector etc but then surely to protect a relatively small number of jobs (in the total economy) then the WHOLE population must suffer high prices etc etc.
Or have I completely missed the boat? (quite possible:rollsmile
In the USA, a Big Mac sells for $4.79 as of January 2015 – in South Africa the price is $2.13 (R25.50).
This means that a South African in the USA would expect to pay R57.46 for the same product that costs R25.50 locally.
In order to reach pricing parity, the value of the South African currency would have to sit at R5.32 to the dollar.
This shows that the rand is undervalued by 57%.
Data from the World Bank points to similar PPP values, showing that between 2010 and 2014, South Africa’s currency carried an average PPP trade value of R5.11 when purchasing its selected basket of goods.
According to the Economist, a fairer measure of a currency’s fair value would be to look at the relationship between prices and GDP per person.
“The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation,” it said.
According to the World bank, South Africa has a GDP per capita of $12,506.70 (in international or PPP dollars), versus the US GDP per capita of $53,042.00.
THIS!!!:RedNo::RedNo::RedNo: This right here is what irks me. What are the drivers that cause our currency to be undervalued by 57% as is indicated about in bold???
I understand that if the Rand would be 57% stronger ie at sat R 5.32 to the US$1.00 then that would punish say the mining sector etc but then surely to protect a relatively small number of jobs (in the total economy) then the WHOLE population must suffer high prices etc etc.
Or have I completely missed the boat? (quite possible:rollsmile
