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Pretoria - Fixing an exchange rate at a particular level does not necessarily lead to competitiveness, Reserve Bank governor Gill Marcus said on Thursday.
"The crisis in the euro area has shown that having a fixed exchange rate mechanism does not imply that a country's international competitiveness is automatically maintained," Marcus told economists at a Reserve Bank conference.
"Fixing a nominal exchange rate does not imply real exchange rate stability. This is a well-known fact but generally forgotten by the proponents of a fixed exchange rate, including those in South Africa who view it as a silver bullet to solve the country's problem of competitiveness."
The rand has gained over 28% since the beginning of 2009, increasing calls for the central bank to take measures to weaken it.
Leftist allies of the African National Congress want the government to fix the exchange rate at around R10/$,but the government has resisted those calls.
On Thursday, the rand was trading near 2 ½-week highs at R6.86/$.
Some analysts see it climbing to R6.60/$, especially after the US Federal Reserve's decision on Wednesday to print more money to support a fragile recovery, which weighed on the dollar and sent investors to higher yielding currencies.
Such accomodative monetary policy will have "implications" for emerging markets, whose currencies have strengthened due to increased capital inflows, Marcus said.
"(Global) monetary policy is likely to remain loose for longer which has implications for emerging market economies in particular, where significant capital inflows have put pressure on their currencies."
"Unfortunately, the global imbalances that were at the heart of the crisis in the first place are still with us and few prospects for a resolution of the problem seem in sight," Marcus said.
"The crisis in the euro area has shown that having a fixed exchange rate mechanism does not imply that a country's international competitiveness is automatically maintained," Marcus told economists at a Reserve Bank conference.
"Fixing a nominal exchange rate does not imply real exchange rate stability. This is a well-known fact but generally forgotten by the proponents of a fixed exchange rate, including those in South Africa who view it as a silver bullet to solve the country's problem of competitiveness."
The rand has gained over 28% since the beginning of 2009, increasing calls for the central bank to take measures to weaken it.
Leftist allies of the African National Congress want the government to fix the exchange rate at around R10/$,but the government has resisted those calls.
On Thursday, the rand was trading near 2 ½-week highs at R6.86/$.
Some analysts see it climbing to R6.60/$, especially after the US Federal Reserve's decision on Wednesday to print more money to support a fragile recovery, which weighed on the dollar and sent investors to higher yielding currencies.
Such accomodative monetary policy will have "implications" for emerging markets, whose currencies have strengthened due to increased capital inflows, Marcus said.
"(Global) monetary policy is likely to remain loose for longer which has implications for emerging market economies in particular, where significant capital inflows have put pressure on their currencies."
"Unfortunately, the global imbalances that were at the heart of the crisis in the first place are still with us and few prospects for a resolution of the problem seem in sight," Marcus said.
