JOHANNESBURG — When South Africa’s rand tumbled to a four-year low, black market currency dealer Valeria raised a quiet cheer; a trip to the wholesaler where she buys clothes for her above-board business brought her back to earth.
Report by Reuters
Valeria, who runs a stall in Johannesburg’s Randburg, rejoiced at the rand’s misfortune last week as it increased the value of her illicit stash of dollars. The problem is that overnight the Chinese wholesaler joined fellow sellers of imported goods in jacking up his prices in rand, reacting to the plunging local currency.
“I’m back to square one,” Valeria, who did not want to give her surname, said. “In fact, I’m worse off because trading forex is only a small part of what I do. The clothes are my main source of income.”
Valeria is not alone. In emerging markets as diverse as Brazil, Poland and Indonesia, millions of people and businesses from street hawkers to luxury retailers face turbulent times. This is all because far away in Washington, the Federal Reserve is starting to think about scaling back its “quantitative easing” programme for boosting the US economy.
The scheme has pushed US interest rates close to zero, encouraging investors to divert trillions of dollars into high-yielding debt denominated in currencies such as the rand.
Even before the US central bank unwinds the programme, huge sums are flooding back into dollars as investors anticipate higher US rates and flee the emerging market currencies that they helped to push up, and are now undermining.
All this is affecting lives and livelihoods around the world. Central Bank governors such as South Africa’s Gill Marcus describe the gyrations in technical terms such as “currency overshoot” or “disorderly markets”.
For Kenny Dzimba, a Zimbabwean living in South Africa, the problem is clearer. Zimbabwe has ditched its worthless currency for the US dollar and Dzimba lost 5% on one transfer because he delayed sending the money home for just two days.
Under exchange control rules, such transfers have to be made in dollars. Rand also circulate in Zimbabwe but retailers there are raising their prices in the currency as it slides against the dollar.
“I guess, you snooze, you lose,” Dzimba said with a shrug after reading his transaction slip at a Johannesburg branch of the Western Union money transfer company.
But while the rand is fluctuating, its overall weakness is putting pressure on everybody from flea-market traders selling wigs imported from China to upmarket retailers in the malls of Sandton. Producers are pessimistic about prospects this year, with the South African Chamber of Commerce and Industry reporting a dip in business confidence last month amid fears of more turbulence in the mining sector.