One Dollar Bill
When I was born in 1975 one South African rand was worth more than a dollar (one dollar would only buy you about R0.68). Now one dollar will buy you R6.88. Even more bizarre is about a decade ago, one dollar would have bought you about double the current amount in rands.
So what is it that determines an exchange rate? An economist might tell you it has to do with the long term differentials of interest rates and inflation between two countries or something like that. I am not sure how long “long term” is supposed to be but in practice things really seem to be out of whack.
A Vancouver lunch costing over $50
For example here in America a basic lunch for two at a medium level restaurant will easily set you back at least $50 (once you add a drink each and the tip). In South Africa the same meal would be closer to the equivalent of $20.
I bought a new pair of ski googels with all the features (anti-fog, anti-scratch, UV protection etc.) and it came in at under $50. Likewise, if you want a new top of the range DVD player (say a Philips DVP5960, which comes with HDMI and usb ports), in America it will cost you in the region of $50.
Bollé ski googels bought for sub $50
A new pair of ski googles is akin to buying a new pair of sun glasses in SA. I know I wouldn’t think twice about grabbing a bite out to eat for lunch but the decision to buy a new pair of sun glasses or DVD player involves a lot more thought. However, based on cost only, in America these two decision should demand about the same amount of thought.
Stuff is just so much cheaper over here in America. And certain other things, like eating out, back home is so much cheaper. All I can say is at the prevailing exchange rates, the value of a dollar is definitely different depending on the country you are in and what you are spending it on.
Surely there must be an arbitrage opportunity here?
It’s the same with the Pound. It costs us about £70 – £90 for a meal out here. I could never imagine spending almost R1000 on a meal for 2.
I do think electronics are cheaper in the US too. We seem to get a raw deal everywhere else in the world.
Let’s test that theory with some complimentary iPad2’s then…