His statement this week* will also do little to stem the groundswell of pressure on the government to intervene in the rand, which is generally accepted to be overvalued.
So what can be done? The Organisation for Economic Co-operation and Development has made some valuable - but not novel - suggestions, including the accumulation of foreign exchange reserves and the removal of the vestiges of exchange controls.
But before we move on manipulating the currency, we should remind ourselves of the pitfalls. Under former Reserve Bank governor Chris Stals, intervention in the rand's value led to a net open forward position - a dollar-based overdraft - of $25-billion, which took many years and billions in taxpayers' money to wind down. Intervention is an expensive exercise and has other implications for the economy - for example, on inflation.
Intervention is, more often than not, a short-sighted and opportunistic reaction to the problems caused by a strong rand. It is usually an expensive effort to keep market forces at bay, if that is ever possible. More than a weak rand, South Africa needs a currency that is not volatile. Again, market forces will dictate volatility, but the rand has actually been remarkably stable in recent years.
While we often call on the government to act on a variety of issues, this is one instance where it would be better for it to do nothing.
* In Zuma"s statement:
"We have not taken any decision, but those are matters we are looking at," Zuma said at a press conference held in Pretoria.
"Even economists don't have one view on the matter." Zuma said that in his discussions with business people, some had argued for the weaker currency and others for a stronger.
"Economists don't easily agree on matters... but it is a matter that is occupying the minds of economists as well as the government."
He said discussions on the currency would form "part of some very special session", where many economic issues would be discussed.
Source: Sunday Times
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