Inflation is theft: Why South Africa needs sound money now

Key topics

• Inflation silently erodes savings and investor confidence

• SARB reforms needed to protect the rand and economic freedom

• FMF proposes alternative currencies and SARB independence

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By Ayanda Zulu

We must acknowledge a fundamental reality: economic reform cannot succeed without sound money. When the currency loses its value, no amount of planning, saving, or investing can protect ordinary South Africans, particularly the poor, from the silent erosion of inflation.

Money is at the heart of everyday life. When inflation rises unpredictably, as the 2024 Economic Freedom of the World report warns, it undermines people’s ability to make sound economic decisions. It doesn’t merely reflect poor policy; it also amounts to the expropriation of property. Inflation silently taxes savers, wage earners, and the most financially responsible members of society.

South Africa’s monetary environment has long been clouded by uncertainty. While there has been some progress, such as a decline in money supply growth, the country continues to face price inflation challenges. A sustained period of elevated inflation has already weakened confidence in the rand, raised living costs, and undermined long-term investment.

To grasp the depth of the problem, one must consider four key indicators of sound money, which are: the growth of money supply, inflation volatility (measured by the standard deviation of inflation), the most recent inflation rate, and access to foreign currency bank accounts.

The country performs moderately well in three of these areas. Money supply growth has slowed, inflation volatility has remained relatively stable for two decades, and residents can freely hold foreign currency bank accounts, which is a sign of openness. Nevertheless, the fourth indicator – our most recent inflation rate – continues to pose a serious challenge.

As of December 2024, the annual inflation rate stood at 3.02%, which is a significant decline from 6.07% in 2023. While this decrease is encouraging, it does not erase the country’s long-standing struggle with price stability. For over a decade, inflation remained consistently above the global average. This was a trend that damaged public trust and investor confidence.

Even with recent progress, persistent inflation continues to erode savings and discourage both domestic and foreign investment. Over time, it can weaken the foundations of a stable and growing economy.

The South African Reserve Bank (SARB) operates under a clear inflation target range of 3–6%, with a midpoint of 4.5%. In recent years, SARB Governor Lesetja Kganyago has shown commendable leadership by suggesting a more conservative target of 1–3%, which is in line with global best practices. This reflects a deep respect for the SARB’s constitutional mandate of protecting the value of the currency in the interest of balanced and sustainable growth.

However, sound intentions alone are not enough. The SARB continues to face the chief political threat of nationalisation. Such an idea jeopardises its independence and undermines the credibility of the country’s monetary system at a time when stability is desperately needed.

This is why the Free Market Foundation (FMF), through its Liberty First policy agenda, proposes a principled and liberty-oriented path to secure a sound foundation for South African money (www.LibertyFirst.co.za).

Firstly, we recommend amending the South African Reserve Bank Act to make its sole mandate, which is the protection of currency value, explicit and unambiguous. In a country where populist pressures often override long-term planning, this clarity is vital. 

The FMF also advocates for stronger legal and institutional safeguards to insulate the SARB from executive interference and preserve its independence as a non-negotiable pillar of economic governance. This includes ensuring that future appointments to the SARB board prioritise candidates who favour a rules-based approach to monetary policy. Such an approach reduces discretionary decision-making and provides greater predictability and trust to households, investors, and businesses alike.

Secondly, the FMF supports the legal recognition of alternative currencies, which includes cryptocurrencies and other digital currencies. This empowers citizens to opt for currencies that better retain value, especially during times when confidence in the rand wanes. It is not only a matter of consumer protection but also of expanding economic liberty and giving South Africans more tools to protect their financial futures.

Ultimately, the aim of these reforms is to restore money’s role as a dependable store of value and a stable unit of account. Without this foundation, no meaningful economic progress is possible. Sound money enables families and businesses to plan for the future without fearing that inflation will sabotage their efforts. It disciplines government by removing the temptation to inflate away fiscal shortfalls.

In a society already burdened by economic fragility, sound money is not a luxury, but a necessity. Fiscal policies and economic dreams all rest on this foundation. As we work to build a freer and more prosperous country, we must remember that freedom begins with trust. And trust begins with money that holds its value.

*Ayanda Sakhile Zulu holds a BSocSci in Political Studies from the University of Pretoria and is an intern at the Free Market Foundation.