Zimbabwe’s switch to a gold-backed dollar

Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Bloomberg News in an article — by Colleen Goko-Petzer and Ray Ndlovu, “Battered Zimbabwe Currency Falls Past 20,000 Per Dollar in Official Trade” — regarding whether Zimbabwe is about to abandon its current currency (ZWL) for a new one backed by gold, how feasible it is, and our general outlook for the currency.

The country and economy

🌍Zimbabwe is a land-locked country of 15MM people—that to the east borders Mozambique—that gained independece in 1980. Its main exports are platinum, gold, diamonds, and agriculture. The country has weathered volatile and often negative growth, bouts of high inflation, and several currency regimes. Longer-term stability will depend on economics and government trust.

Article excerpts are below:

The postponement has caused anxiety locally, but most outside investors have already abandoned Zimbabwe’s currency, said Michael Ashley Schulman, chief investment officer and partner at Running Point Capital Advisors.

“The major concern for people in the country is that if Zimbabwe does switch to a gold backed currency, they will do it at an exchange rate favorable to the new currency and unfavorable to citizens, thus leading to a further last minute devaluation,” Schulman said. “In other words, if you have Zimbabwean dollars, you want to spend them as quickly as possible on something tangible.”

Having a gold backed currency won’t necessarily stop future devaluations from occurring, Schulman added. “The government can still print money and change its currency ratios.”

The pool that is calm is where the crocodiles live.

What is loaned to you can be taken from you even when you still need it.

Zimbabwean proverbs

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-24-47