Question

Discuss the measures that can be put in place to ensure that the weakening rand does not affect growth negatively.In your discussion highlight the importance of the balance of payments,policy around competition,South africas economic strategy in relation to exports and imports and a possible diversification strategy.

Answer 1

Rand weakness refers to the situation of higher prices for the goods quantity in shops which are imported from different countries. This leads to high inflation in the economy. This definition of rand weakness for South Africa states the condition of expensive imports by the shops of the country and limits the central bank from cutting the interest rates.
This would not affect the growth negatively as the exports of such country will be more competitive as compared to rest of the world. This will also impact the balance of payments as the transactions between the country and other country changes. The imports and exports are also affected by weakening rand in a country. When the imports become expensive, the country will reduce the imports and this will positively affects the balance of payments.
The South Africa uses such policy for strategizing the economic growth factors. The competitive exports will improve the currency value and balance of payments also. Since the South Africa is mainly famous for the exporting of minerals. Therefore, high competitive prices in other countries will give a positive image of economic growth. The reserve bank will use aggressive monetary policies. Also, rand weakness could cause political risk, so to prevent excess weakness of rand and also easy earning profits could also cause high tensions sometimes.