Lesetja Kganyago: Exchange rates and tariffs
Address by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at the Kgalema Motlanthe Foundation Drakensberg Inclusive Growth Forum, Drakensberg, 10 October 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Ladies and gentlemen, thank you for the opportunity to address you today. I am grateful to former President Kgalema Motlanthe and his Foundation for convening this forum, and it is a pleasure to be with you all here in the beautiful Drakensberg.
The theme chosen for my address – exchange rates and tariffs – speaks to both an old problem and a new one. The old problem is the alignment – and misalignment – of exchange rates. This remains a subject of perennial interest in global macroeconomics, with each decade marked by its own controversies. The new problem is tariffs, which is new in the sense that, until this year, we lived in a world where all the leading countries favoured openness to trade, and had done so for decades. We no longer live in that world. What does this mean for our economy?
Exchange rate effects of tariffs
Let me start with the relationship between tariffs and the exchange rate, and specifically with the textbook account. The textbook says that, when a country imposes tariffs on trade, it will make itself more expensive. For instance, tariffs on cars or fridges make imports costlier and allow domestic producers to charge higher prices. Furthermore, as people reduce their consumption of traded goods, they supply less currency to foreign exchange markets, which tends to strengthen the local exchange rate.