Purchasing Power of Currencies

The aggregate demand curve is composed of consumer consumption, private investment spending, public investment spending, plus income from exports, minus the cost of imports. That is, C + I + G + X - M.  The last two elements are known as the current account. South Africa has a current account deficit (the economy imports more than it exports), which contributes to the weakness of the rand. 'Weakness' refers to the real amount of goods or services that a currency can purchase abroad, compared to in its domestic economy.

The purchasing power parity conversion factor shows how many local currency units can buy the same amount domestically as one international $ can buy in the US, for a basket of goods and services that the International Comparison Programme maintains. The indicator for the PPP conversion factor is https://data.worldbank.org/indicator/PA.NUS.PRVT.PP .

For example, at the time of writing in November 2023, the USD was 2.73 times stronger than the ZAR:

( R 18.82 / USD )  /  ( R 6.90 / PPP$ )  =  2.73

Another example, between two countries other than the USA: The pound is

( R 23.72 / GBP ) / ( (R 6.90 / PPP$) / (£ 0.79 / PPP$) )  =  2.72

times stronger than the rand.

Speech

(November 2016)