Dividends and Zimbabwe unveils gold coin to help bolster collapsing currency

Every quarter large organizations and governments introduce new products to deal with a problem and the organization believes a solution is offered. However, it will be clear to everyone but the policy makers, the solution was not the best solution because people at all levels can see right through it.

In an article by Jeffrey Moyo and Geofrey York of the Globe and Mail, the government of Zimbabwe has many problems including a collapsing currency and the world’s worst inflation rate. The policy makers introduced a 22 carat gold coin costing $1,800 US.

In the article, the reporters asked ordinary people if they were buying or had seen someone using the coins. The answer was no. The official inflation rate in Zimbabwe was 257% in July, according to Steve Hanke, a US economist the real rate was 595% a year.

The gold coins are bought by wealthy investors and speculators because the coins can by bought in Zimdollars at the official exchange rate, far below the street rate. Traders change their US dollars into Zimdollars on the street market (the unofficial rate is 800 to one US dollar, up from 400 to one), use the Zimdollars to buy gold coins and then sold the coins to banks for US dollars for easy guaranteed profits. What was the solution the government was trying to solve?

Linking to dividend paying stocks, there are a great many good ideas that come everyday, there are also ideas that do not work but make it through the process. The reality is everyday people will determine if an idea is good, speculators will see if the idea can be exploited and unless someone has decided which one is more important, the customer will decide whether the idea is good or should be discarded. Ideas come through the decision making process for many reasons, hopefully with your investments, there are more genuinely good ideas.

There are more questions than answers, till the next time – to raising questions.

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