The rand traded below R16 to the US dollar last week, for the first time since February this year. Much of the coverage called it a psychological barrier. Some called it a milestone. Both are reasonable descriptions of what happened on a screen.

For most people reading this, the question is simpler. Does it reach me, and would I know it if it did?

The honest answer is yes, in some places quickly, in others slowly, and in many places not at all. Understanding which is which explains why a stronger currency so often feels like nothing at all.

The clearest place to see it is in something bought abroad and sold here with very little happening in between. A laptop, a car part, a phone, imported medicine. These are purchased in dollars, so when the rand moves from R17 to R16, a thousand-dollar item costs about a thousand rands less to bring in. That is the whole mechanism, and in this category you can genuinely watch it work, although not straight away, because retailers are still selling stock they bought at older rates and it takes a few months before a new rate reaches a shelf. It is also worth being honest that savings on the import side are not always passed on to the customer.

Fuel is where it becomes more difficult to see, because fuel is also bought in dollars, but the dollar price of fuel does not stand still. Brent crude has been sitting near ninety dollars a barrel. And the pump price is not set on the exchange rate of any given day. It is set on an average taken across a review period, which this month ran from the end of July to 25 August, and the rand only moved below R16 in the final days. The strength arrived too late to count for much. Petrol is set to rise by close to a rand a litre on 2 September, in the same fortnight the currency reached its best level in six months.

Both things are true at once. The stronger rand did hold that increase down. It simply could not hold it off, and an increase smaller than it otherwise would have been is not something anybody can feel.

Then there is everything else, which is most of what a household actually spends money on. By the time a loaf of bread reaches a till, it has passed through a factory, a truck, a wholesaler, a landlord and a retailer, and each of them carries costs of their own, most of them local. The exchange rate is somewhere inside that chain doing quiet work, and it is impossible to point at.

That is why the rand so seldom feels as though it has moved. It reaches us last, and by the time it does, it is wearing somebody else’s name.

Which brings up a more useful question than where the rand is going next, namely where this particular move came from.

Roughly half of it has nothing to do with us. The US dollar has weakened this year, and when the dollar weakens, it weakens against almost everything, so most emerging market currencies have gained alongside ours. Gold and platinum prices have climbed too, and since we sell both, more dollars come in and the rand firms. None of that is a South African achievement. It is arithmetic that fell our way.

The other half is closer to home. Foreign investors have put a considerable amount of money into South African government bonds this year, and to lend to us in rands they must first buy rands, which is a good part of what pushed the currency through R16. They are here because our interest rates are high relative to our inflation, which makes the return attractive by global standards. There is an uncomfortable side to that, and it deserves its own conversation. The same interest rate drawing that money in is the one sitting on your bond and car instalment repayments. The stronger rand is not free.

We have also been here before, recently enough to learn something from it.

Between April last year and the end of January, the rand ran from close to R20 to around R15.70. Most of that was earned. Load shedding stopped, the country came off the greylist, credit ratings improved, and the ports began showing progress. Investors looked at South Africa again and repriced it on what was actually happening here.

Then at the end of February, conflict escalated in the Middle East. Oil spiked, currencies moved everywhere, and within weeks the rand was back around R17. Nothing had gone wrong in South Africa. That episode repriced almost everything, everywhere, and we were simply caught in it. Now the rand has returned to where it was, again largely because of things happening somewhere else.

So when we ask whether this is a flash in the pan, we do not need a forecast to answer it. We ran the experiment this year. Strength we earn tends to hold. Strength the world lends us tends to be recalled without notice.

If there is one thing to take from a currency headline, it is that the number itself is not the signal worth watching. What matters far more, if you are running a household, is whether the same basket costs roughly the same three months running, and whether prices move gently rather than in jumps. That is what a stable currency feels like from the inside, and it is worth a great deal more to an ordinary family than strength is.

A strong rand makes headlines. A steady one lets people plan. We have reached this level twice in a single year and lost it once, and the work that decides whether we keep it is not happening on a trading screen. It is happening in power stations, in ports and rail yards, and in the offices where budgets are written and then either honoured or quietly missed.

The rand has moved. The question is whether anything else has, and what would have to change here before it does.

 

Yusuf Bodiat is a strategic advisor and writer based in South Africa. He is the founder of Pragmatic Thinking and the author of The Bottom Line: A CFO’s Blueprint for South Africa’s Turnaround.