Exchange rate changes can induce wealth effects because they change the relative values of imported goods and services and exports. A recent IMF paper assesses valuation effects from exchange rate dynamics and shifts in asset prices. South Africa has accumulated a gross foreign asset position in foreign currency that is much larger than its liabilities in foreign currency. This has meant that South Africa has build up a sizable net international investment position which provides a ‘natural hedge’ with depreciation boosting the rand value of foreign assets and supporting debt servicing capacity.
