David,

Please read this with an open mind. This is not a political post this, I just want to paint the tragic picture first before I get to my question.

I live in South Africa. One of our Northern neighbors is Zimbabwe. The country's in total shambles due to a tyrannical oppressor who's stolen elections time after time. The country's got the world's highest inflation rate and its currency's dropped 3 zeros twice already. Needless to say, the Zim Dollar is probably the world's most worthless currency ever!

Being in SA, we experience all the tragedies happening over there because most of their citizens have hopped the border already. This year, the country's reached a breakthrough with an inspiring new leader refusing to stand down to Mugabe. We all anticipate the emancipation and freedom of the people of Zimbabwe soon. The EU and the US have stepped up sanctions against the evil ruler and this has forced him into negotiations with his challenger. Right now, our country (being the reigonal peace-broker and source of stability, it is) is trying to cut a deal and the two opposing camps are in discussions. (Thank heavens!)

Now, I see a bright future for Zimbabwe one of these days. The people will be free and the sanctions will be lifted. Farmers will be allowed back onto the lands and the murders will stop. It's going to be the land of milk and honey once more.

Zimbabwe is rich in resources, from water to gold to platinum to coal to copper and diamonds and everything else. The country used to have a lot of game (until the hungry people were forced into poaching just to survive.) The country's agricultural resources meant once that it was called the bread-basket of Southern Africa, above South Africa itself.

With everything finally lining up for the country and its people, the currency is definitely set for a recovery soon. Every hint of democracy and peace without Mugabe makes most of the world rejoice.

Seeing that the currency is in such a bad state, it can only get better from here, once the new regime has been installed and that's when I want to be there! I know it will get better, I know the country will prosper again, I'm sure of it. Even the US & the UK have pledge billions (yes, that's BILLIONS) towards a turn-around package if only the mess gets sorted out. The mining companies are literally lining up, ready to go. Anglo-American, De Beers, BHP Billiton, you name it. They're all here in SA getting ready for the rush!

Now, most people/companies etc. forbid Zimbabweans to do business with themselves, just try sign up at FXCM for example and click on the foreigners link. It's got a list of countries barred. Zim is one of them. Does this mean one cannot trade its currency either? If not, where can I go to do it the moment the champagne corks pop?

I hope I didn't spook anyone with the realities of Africa. As they say, Africa's a great place, just steer clear of the potholes. Also please do not confuse South Africa with Zimbabwe! We're like South Korea and North Korea - neighbors, yet worlds apart.

Kind Regards,
Euan.

I also Live in South Africam, and my lecturers love using Zimbabwe as an example whenever it comes to currencies and Inflation rate, Apparantely the inflation rate is over 10's of Millions..

Apparently they are going to implement a strategy and they are going to eradicate the currency and start again.

Dave or anyone who cares to inform us, How can they possibly do that? any ideas on their implementation will be great, because this I am sure befuddles millions out there.

this is a copy of an email I received a couple of weeks ago from my friend in S. Africa.

Its from his son who still lives in Zim...
"
got this sms from Andrew in Zim last night:-

"I just bought a bag of potatoes, a bag of oranges, peas, and some
Rape(spinach). It cost 672 thousand million Zim dollars. I have just paid
more than the 2005 national budget !"

Its unbelievable... where prices are now after a further 2 weeks.. ))

Lets hope it comes right soon... its a beautiful country

Hello Euan,
My wife is from South Africa (we live in the USA) originally from around Durban - she and her family came here about 10 years ago. I hear the stories all the time of the home invasions, reclaimed lands, crime, etc. Really a tragic situation. We have a good friend here who was born in Rhodesia (when it was called that), small world.

This is an actual cheque written in Zimbabwe:

Hi Euan,

Thank you for the enlightening post I have been following the situation in Zimbabwe relatively closely and as I understand it they have just devalued again truning 10,000,000,000 (yes that's billion) ZWD into 1 ZWD. I have also had the pleasure of visiting South Africa so I understand what you mean by your North and South Korea analogy.

Unfortunately I am not aware of anywhere that you can trade the ZWD, and if there is a place, I would bet that because of the instability there, you could drive a transfer truck through the spread that you are going to pay to do so.

From a quick google search I also don't think there are any ETF's that track the market there because of the sanctions that are in place. With this in mind, the way to join the party assuming things start to improve there, may be through buying the stocks of international companies who would most stand to benifit when/if things stablize there and the markets open up to foreign investment.

As far as what those companies would be you are probably in a better position to list some potentials there so I will defer to you on that one.

Hope that helps. If there are any other comments questions on this one please feel free to post as always.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Hi Timonr,

Glad to hear from you.

I have a little bit of knowledge in this area just from what I know about the history of things such as what happened with the currencies of countries involved in WW II and Argentina, but I am admittedly speaking a little out of my realm of expertise here so please keep that in mind as you read the below.

In the past when situations have forced a country to "start from scratch" with their currency as I understand it they have normally done so by pegging their currencies to one of the following three things:

1. The currency of another country

2. A "Basket" of other country's currencies

3. A commodity such as gold

They do this by either keeping a reserve of currencies/the commodity that the currency is pegged to which is equal to the money supply of the country or by keeping enough of a reserve of currencies that it allows them to buy and sell their own currency in the open market to make sure that it stays within the parameters of the peg.

This way anyone who holds the currency of the country with the peg, can freely exchange that currency for the currency/currencies that that country's currency is pegged to, or for a set amount of gold or other commodity if that is what is being used.

By doing this, the "faith" that people put in the currency goes from originating from the "faith" that people have in the government and central bank of that country, to the "faith" that they have in the currency, currencies, or commodity that the country has pegged to, and whether or not people feel the country will be able to maintain that peg.

Hope that helps. If there are any other questions or comments on this one please feel free to post below.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.