On April 5th Zimbabwe Announced its New Gold Backed Currency and while this might have seemed like a positive financial development for the country I discovered today that the Zimbabwe Stock Market was utterly destroyed over the weekend after it’s announcement. Dropping insane 99.95% when the market opened on the Monday. I can’t call that a Stock Market Crash, it is nothing short of a Stock Market Destruction.
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Many Doomers have often warned that this is the way things will go with us -- some news breaking late on a Friday or over a Weekend and then on Monday morning it’s all gone and too late. This pretty much just happened in Zimbabwe as a result of the new Gold Backed Currency – ZiG – just being announced. The question I have is WHY?
A naive investor would say this new currency is a good move for financial stability so confidence in business (and thus the Stock Market) might be good after such a development. It is difficult to find out exactly what’s going on because the only articles I can find on it are Mainstream and for the Alt-Channels it probably isn’t big enough news. However for me, I find this fascinating and want to know more.
It does appear that during the Hyperinflation the Stock Market was experiencing a Melt Up so it might make sense that if the Hyperinflation was being stopped with the introduction of Sound Money then the Melt Up might stop too...and all those stocks which were being ridiculously inflated as people tried to get out of the Hyperinflating Currency would also stop Melting Up. But still, a 99.95% drop in an instant? It’s just too much to make sense of.
Another possibility is that this is due to the way the stocks themselves are trading. The ZiG is going to be used for Stock Market trading (by mandate) and yet it hasn’t launched yet. Maybe this is a quirky valuation issue and the Mainstream are just smashing Zimbabwe with negative press because they can. If this is the case then the stock market should pick up again in a few days after the ZiG actually launches.
Does anyone have some ideas about what is really going on here? Is this the sort of market reaction that other countries will (or would) have if they tried to return to some kind of Sound Money? This appears to be a Cautionary Tale of some sort, but I’m just not sure what the moral of this story actually is?