Gyroscopic Investing

I found this story fascinating http://www.nytimes.com/2012/04/25/world ... P4P7qK2sHQ

"By January 2009, the country was churning out bills worth 100 trillion Zimbabwean dollars, which were soon so worthless they would not buy a loaf of bread (the notes now circulate on eBay, as gag gifts). But since Zimbabwe started using the United States dollar as its currency in 2009, it has run into a surprising quandary. Once worth too little, money in Zimbabwe is now worth too much. “For your average Zimbabwean, a dollar is a lot of money,”? said Tony Hawkins, an economist at the University of Zimbabwe. Zimbabweans call it “the coin problem.”? Simply put, the country hardly has any."

That sounds like a great arbitrage opportunity to take a big load of U.S. coins over there and mark them up 5-10% over face value.

This sounds similar to my limited understanding of issues with gold coins during the gold standard.  They're simply worth too much to be used in everyday street transactions.  I guess this is the advantage of silver and copper coins.  It will be interesting to see if the government tries to interfere in the market or just lets people come up with their own medium of exchange (money).  It sounds from the article like the people don't trust the government's money, so it should be interesting to see how things develop there.

Not to hijack your thread, but I'm seriously considering developing a bit of a hobby in collecting currencies, past and present, as well as learning as much as one can reasonably learn about how they function or how they collapsed.  Tally sticks, gold coins, Euros, pre-Euro European currencies, Civil War Greenbacks, Zimbabwean money, Weimar money... learning the stories of all that could definitely give someone a ton of historical appreciation of money & government, good & bad.  We get such a cliffsnotes version of all this by political & economic punditry that few really even understand it.  


MT,

That would almost pay for the 20%-of-value shipping cost of taking the coins over 

Couldn't Zimbabwe develop a minimal sub-currency that is made up of coins that act as dimes or something?... just enough to service the needs of the economy?

moda0306 wrote: Couldn't Zimbabwe develop a minimal sub-currency that is made up of coins that act as dimes or something?... just enough to service the needs of the economy?

Remember we are talking about the Zimbabwe government here.

If they could handle any part of managing a currency, they wouldn't be where they are right now in the first place.

I kind of thought of that as I was writing, MT, but if they have a relatively stable economy at this point their gov't must be doing something right.  I mean looking at the hyperinflation, there were so many other gross mismanagements of government... if they fixed those other problems, one would HOPE they could develop some simple coinage to go in circulation around the dollar.

What's the cost of importing quarters in mass, I wonder?  Maybe a charitable organization should make that part of their duty of promoting economic prosperity in Africa. 

moda0306 wrote: Not to hijack your thread, but I'm seriously considering developing a bit of a hobby in collecting currencies, past and present, as well as learning as much as one can reasonably learn about how they function or how they collapsed.  Tally sticks, gold coins, Euros, pre-Euro European currencies, Civil War Greenbacks, Zimbabwean money, Weimar money... learning the stories of all that could definitely give someone a ton of historical appreciation of money & government, good & bad.  We get such a cliffsnotes version of all this by political & economic punditry that few really even understand it.  

I am a multi-trillionaire in Zimbabwean currency My girlfriend's birthday present to me was a framed set of 10, 20, 50 and 100 Trillion notes.

MediumTex wrote: That sounds like a great arbitrage opportunity to take a big load of U.S. coins over there and mark them up 5-10% over face value.

That reminds me of the Seinfeld episode where Newman and Kramer use a Postal truck to bring their empty cans across state lines to get the extra deposit reimbursement.   

moda0306 wrote: I kind of thought of that as I was writing, MT, but if they have a relatively stable economy at this point their gov't must be doing something right.  I mean looking at the hyperinflation, there were so many other gross mismanagements of government... if they fixed those other problems, one would HOPE they could develop some simple coinage to go in circulation around the dollar.

The government didn't fix its problems.  The free market fixed it for the government by rejecting the government's currency and using U.S. dollars until the point the government cried mea culpa and accepted its fate.  That then stabilized the economy.

MG

Reub wrote: That reminds me of the Seinfeld episode where Newman and Kramer use a Postal truck to bring their empty cans across state lines to get the extra deposit reimbursement.   

That was classic!  That episode actually inspired people to do it and the states involved eventually banned the practice, which is pretty stupid if you think about it if the point was to "save the environment" as opposed to constraining costs for a dubious scheme.

MG

The article discusses the pocket change issue. In Ecuador local coins were used. In Zimbabwe no one trusts the money made by the government, so local coins are out. South African coins are possible but using them involves figuring out an exchange rate conversion between dollar and rand on top of the math involved in making change for a dollar. This is too much effort for the people involved in the transactions with a line forming behind them at the cash register so the solution is to buy some stuff you might need later or could trade so that the purchase comes out close to even in dollar terms. Some soap or a bunch of pens or something.

Reading the article I was struck again by the idea that money has a moral dimension. Protecting the store of value function of money is part of the compact between the state and the citizen. When I read articles where economists calmly advocate a policy of negative real interest rates I feel angry. This is the state abusing citizens whose vulnerabilities make it difficult or impossible for them to adapt. It is as cowardly as stealing coins from a blind man's cup.