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  • Zimbabwe’s New Currency: Why It Ditched the US Dollar

    Zimbabwe’s New Currency: Why It Ditched the US Dollar

    Zimbabwe has a complex economic history marked by dramatic swings from hyperinflation to reliance on foreign currencies. Recently, Zimbabwe has taken bold steps to reintroduce its own currency, the Zimbabwean Dollar (ZWL), after a decade of using the US Dollar. This article delves into why Zimbabwe decided to ditch the US Dollar and what this change means for its economy and its people.

    2. Background: The Adoption of the US Dollar

     Hyperinflation and the Collapse of the Zimbabwean Dollar

    In the late 2000s, Zimbabwe experienced one of the most severe cases of hyperinflation in modern history. At its peak in November 2008, inflation soared to an unimaginable 79.6 billion percent month-on-month. This economic chaos rendered the Zimbabwean Dollar virtually worthless, leading to its abandonment in favor of more stable foreign currencies, primarily the US Dollar, in 2009.

     Transition to the US Dollar in 2009

    Adopting the US Dollar helped stabilize the economy initially. Inflation rates plummeted, and the economy saw a brief period of recovery. However, the reliance on foreign currency came with its own set of challenges, leading to a complex and often difficult financial landscape.

    3. Challenges with the US Dollar

     Shortage of US Dollars in Zimbabwe

    As time passed, a severe shortage of US Dollars emerged in Zimbabwe. This shortage was partly due to a trade imbalance and a lack of foreign direct investment. With limited US Dollars available, the country struggled with liquidity issues, making it difficult for businesses and individuals to conduct transactions.

     Impact on Local Businesses and the Economy

    The scarcity of US Dollars severely constrained the economy. Local businesses found it hard to operate due to the lack of liquidity. Additionally, the reliance on foreign currency made it difficult for the government to implement effective monetary policies, further hampering economic growth and stability.

    4. Introduction of the Zimbabwean Dollar (ZWL)

     Steps Leading to the Reintroduction of the Zimbabwean Dollar in 2019

    In 2019, the Zimbabwean government reintroduced the Zimbabwean Dollar as the official currency. This decision was part of a broader economic reform strategy aimed at restoring monetary sovereignty and control over the country’s financial system. The reintroduction was phased, starting with the issuance of bond notes and coins, which were eventually followed by new banknotes.

     Government’s Rationale for the Currency Change

    The government’s rationale was to regain control over the country’s monetary policy, which had been severely constrained under the US Dollar regime. By introducing the ZWL, the government hoped to ease the liquidity crisis, reduce dependency on foreign currency, and stimulate economic growth by enhancing domestic monetary operations.

    5. Economic Reforms and Policies

     Monetary Policies to Support the New Currency

    To support the new currency, the Reserve Bank of Zimbabwe implemented various monetary policies, including the issuance of Treasury Bills to mop up excess liquidity and curb inflation. Additionally, measures were taken to promote the use of the ZWL over foreign currencies in domestic transactions.

     Fiscal Measures and Government Initiatives

    On the fiscal side, the government introduced a variety of reforms aimed at stabilizing the economy, including tax incentives to encourage the use of the ZWL and austerity measures to control public spending. Efforts were also made to boost production in key sectors such as agriculture and mining to increase foreign currency reserves.

    6. Public and Business Reaction

     Response from the General Public

    The reintroduction of the Zimbabwean Dollar was met with mixed reactions. While some saw it as a necessary step towards economic sovereignty, others were skeptical, fearing a return to hyperinflation and economic instability. Trust in the new currency remains fragile, with many people continuing to use foreign currencies where possible.

     Impact on Local Businesses and Industries

    For businesses, the transition presented both challenges and opportunities. Companies had to quickly adapt to the new currency system, which included updating pricing strategies and adjusting to new financial regulations. While the move aimed to ease liquidity issues, many businesses still face difficulties due to the limited availability of the ZWL and ongoing economic uncertainties.

    7. Inflation and Economic Stability

     Current Inflation Rates and Economic Conditions

    Despite efforts to stabilize the economy, inflation remains a significant issue in Zimbabwe. As of 2024, inflation rates are still high, although they are lower than the hyperinflation levels experienced in the past. The government continues to implement measures to control inflation and stabilize the economy, but progress is slow and challenging.

     Efforts to Stabilize the New Currency

    To enhance confidence in the ZWL, the government has taken steps to increase its availability and ease the liquidity crisis. This includes issuing more banknotes and coins and ensuring that essential services and goods are priced in the local currency. These efforts aim to reduce dependency on foreign currencies and promote wider acceptance of the ZWL.

    8. Comparison with Previous Currency Regimes

     Lessons Learned from the Past

    The reintroduction of the Zimbabwean Dollar brings back memories of the hyperinflation era. However, the government aims to learn from past mistakes by implementing stronger fiscal and monetary policies. This includes tighter controls on money supply and efforts to boost economic productivity to support the value of the new currency.8.2. Differences and Similarities with the Previous Zimbabwean Dollar

    Compared to the old Zimbabwean Dollar, the new ZWL is introduced under a more controlled and planned approach. While the old currency was plagued by excessive printing and lack of confidence, the new ZWL is supported by a series of reforms aimed at maintaining its value and stability. However, the underlying challenges of economic instability and inflation remain significant concerns.

    9. Future Prospects

     Predictions for the ZWL’s Performance

    Looking ahead, the performance of the Zimbabwean Dollar will depend on the government’s ability to maintain economic stability and control inflation. If successful, the ZWL could gradually gain wider acceptance and reduce the country’s dependency on foreign currencies. However, achieving this will require sustained efforts and continued economic reforms.

     Potential Challenges and Opportunities

    The path forward for the ZWL is fraught with challenges, including the need to build public trust and manage economic pressures. However, there are also opportunities, such as the potential to boost local industries and reduce the cost of living by stabilizing the currency. The success of the ZWL will hinge on effective policy implementation and the ability to adapt to changing economic conditions.

    Quick Review:

    Q1.Why did Zimbabwe initially adopt the US Dollar?
    Ans. Zimbabwe adopted the US Dollar in 2009 to combat hyperinflation and stabilize the economy after the collapse of the Zimbabwean Dollar, which had become practically worthless.

    Q2.What are the main benefits of the new Zimbabwean Dollar?
    Ans. The reintroduction of the Zimbabwean Dollar aims to restore monetary sovereignty, ease liquidity issues, and allow the government greater control over monetary policy to stimulate economic growth.

    Q3.How has the reintroduction of the ZWL impacted inflation?
    Ans. While inflation remains high, it is lower than the extreme levels experienced during the hyperinflation era. The government continues to implement measures to control inflation and stabilize the new currency.

  • Most Important Questions To Ask Before Taking a Trade

    Most Important Questions To Ask Before Taking a Trade

    Before taking any positions in markets, it is a must to find your “why?” Once we find the answer to why and sort it, losing or winning does not matter much. Moreover, if we find the answers to 6 significant questions before having taken a position, irrespective of long or short and investing or trading, the clear picture of “why” is found and addressed.
    Thus, the trade can be considered as completely planned and structured. This is an inspiration from the book named Trend Following by Michael Covel.

    1. What to Buy or Sell?

    This is the most significant question to be asked in a trading system – what one is going to trade or invest in, among the equities, options, commodities, currency and agri Commodities. Generally, one should trade in the following:

    1. Highly Liquid – Index, Commodities, ATM (At The Money) Options.
    Index – NIFTY, Bank Nifty Options – At the Money Options.
    For Instance, generally I am more focussed on trading in index and commodities, so I prefer trading in NIFTY, BANK NIFTY, SILVER, LEAD and CRUDE, as they are back tested and their volatility matches my personality.

    2. Highly Cyclical – Sectors like Real estate, Banks, Oil, Metals, etc.
    One should invest in stocks which are defensive and more on consumption themes. It all depends on what market one trades in and what his risk appetite is. My trades are in:
    Commodities – Crude Oil, Lead and Silver Equities – 7 Different cyclical sectors such as capital goods, banks, infrastructure, real estate, diversified, finance and pharma.

    2. When to Buy or Sell?

    Once it has been decided what to buy, the second question is – when to buy? ‘What’ would be set as the technical or fundamental indicators, based on which the buying and selling decisions will be generated.

    For example:

    1. All-time fresh high, that is done after at least 10 years – the longer the years, the better is the breakout, while keeping the Happy Loss as the previous month’s low
    2. Closing above or below 50 days Exponential Moving Average
    3. Closing above or below 200 Days Simple Moving Average

    Please note: Do the proper back testing before executing the system, considering your risk appetite. These are very simple type of trading strategies, to begin with, and I assure you, these systems hold the potential of delivering returns beyond one’s expectations; they have the power to give much more consistent returns than one usually expects to attain.

    3. When to Exit?

    There are no Guarantees in this business, but “The only thing that is guaranteed is that there will be losing trades.” As one holds an entry plan, planning the exit point is equally important; we trade with a desire that we will not go wrong anywhere, but this is the major myth; we have all the right to go wrong, and we surely will.

    The exit is a decision that is undertaken when the trade of either long or short did not go as per the expectations, and thus, one desires to take the opposite position. Let me explain it in a simple manner: All of us buy Insurance policies –Health Insurance, Life Insurance, Office Insurance and Home Insurances. Why? Do we want to Die or get sick? NO, but we take the probability of any misfortune happening in future and thus, insurance can prove to be a savior.

    The Complete Trader always considers stop loss as an insurance for the trading so as to save the destruction of the capital in case of any unexpected market volatility. Thus, the incurred loss, even after exiting at the stop loss, can be considered as the “Premium,” i.e., paid to attain an insurance policy. Through such a mind-set, trust me, one will not face issues associated with losses.

    4. When to Book Profits?

    This is a question which totally depends on system to system or trader to trader. The Complete Trader doesn’t book profits till the time the trend changes, irrespective of a short term, positional or a long-term trend. Profit booking is for Amateurs; riding Profits is for Professionals. As Mr. Jesse Livermore quotes, “Profit Takes care of itself; Losses never do.”

    ”There are 2 Animals in the Jungle – a Sheep and a Lion. Sheep eats every day and is able to gather food easily, whereas, a Lion waits for the prey and takes 5–10 sheep together and feasts only once or twice a week. Now, it’s the same in the markets; Sheep is the trader who books profits here and there, whereas Lions are the traders who earn the profit equivalent to 5–10 Sheep- like traders and once in many months.”

    5. How much to Buy/Sell?

    This is a very crucial question as the sustainability of the traders lies in this question. Different type of risk takers and their leverage systems are:

    Defensive Traders: Those who don’t like more ups and downs in markets and are happy with decent returns should not take leverage at all. For instance, if someone is trading 1000 NIFTY with a price of 8000 INR, he or she should have 80,00,000 INR as an investment and trade, i.e., total Contract size or 0 leverage, as per the rules of SEBI with PMS, no leverage.

    Moderate Traders: One is open for “Calculated Risk” that can go for 1, 2 or 3 times leverage, if someone is trading NIFTY 1000 with price of INR 8000, he is required to have INR 40,00,000 or 30,00,000, i.e., 30% to 50% of total Contract size; this means that taking calculated risk surely depends on the calculation of your system’s drawdowns as well.

    Risky Trader: One should not trade in this category.

    The Complete Trader, but here are some areas such as commodities or currency, where the overall age of the asset is not that wide, so considerably, one can take leverage accordingly. However, doing this with equities is not recommended, and in the remaining cases, 1:5 is the maximum leverage that is recommended to any trader.

    I believe there are 2 things which can kill a trader:

    1. Leverage  2. Lack of Patience

    6. When to Scale up?

    Generally, this question depends on the designed trading/ Investing system; the first 5 questions can be known through books or other sources, but this question is unfamiliar to masses and should be given huge emphasis in order to excel in trading, i.e., When to add up? When does a system hit a drawdown of 15%? There are chances of systems giving the best reversal, or maybe, when the stocks clear a specific level, that is the point when one should add up in a stock or Commodity.
    Similar to how we generally add up when Draw Down (DD) is at its nervous level, whenever one starts feeling that there is no ray of hope, that is the time when a new trend is coming.

    7. When to STOP?

    Since we have decided that we will give any system 999 days to perform, if it fails to perform the way it had been back tested, we will review whether the system is the problem or the market has reacted in an adverse manner. Only through reviewing, we will be able to make out whether to continue or terminate the trade. Like how we were Trading in Nickel. For the previous 3 years, it was dragging the portfolio down. In the third year, we decided to exit from it, and on today’s date, we realize it to be a wise decision. This is the Card I follow before taking any positions. If all the questions in this card below are not answered, it’s very risky to take a Trade/Invest.

    It is a rule to answer these questions and then only take the trade.

  • CURRENCY MARKET

    CURRENCY MARKET

    currency-market

    The currency market includes the Foreign Currency Market & the Euro Currency Market. Various countries’ currencies are traded in Currency Market. The Foreign Currency Market is virtual. There is no one Central physical location that is the Foreign Currency Market. The Foreign Exchange Market (forex, fx or currency market) is a global decentralized or over the counter (OTC) market for the trading of currencies. This market determines the Foreign exchange rate.

    It includes all aspects of buying, selling & exchanging currencies at current or determined prices. In terms of trading volume, it is by for the largest market in the world, followed by the credit market.

    Trading on Foreign Exchange Market establishes rates of exchange for currency exchange rates are constantly fluctuating on the forex market. As demand rises & falls for particular currencies, their exchange rate adjust accordingly. A rate of exchange for currencies is the ratio at which one currency is exchanged for another.

    Future trading happens in currency market. Currency options have been started in USDINR. Currency market trading is conducted on two exchanges viz MCX-SX (multi commodity exchange) & NSE (National Stock Exchange). We an do trading in four important pairs in India USDINR, EURINR, GBPINR & JPYINR. Daily turnover of currency market is more than 10,000/-cr. Market timing for this segment is Monday to Friday from 9am to 5pm.

     

    Symbol Rate Lot Size Margin

    3% (0.03)
    USDINR 65 1000 1950Rs.
    EURINR 75 1000 2250Rs.
    GBPINR 80 1000 2400Rs.
    JPYINR 65 1000 1950Rs.

     

    USDINR is known as pair currency, in pair currency first factor is known as base currency & the second is known as term currency. We pay term currency & buy or sell base currency. We require very less margin in this & if we get 10ps movement also we get Rs.100 profit & if it raises by Rs.1 then the profit is 1000/-. In India USDINR has major volume.

    ADVANTAGES OF CURRENCY MARKET 

    1.  24 HOUR OPEN MARKET:

                                                 The foreign market is worldwide. There is no waiting for the everyday opening bell. Trading starts when the markets open in Australia (Sudney session) on Sunday evening & ends after markets close in NEW YORK on Friday.

    This is fabulous for those who would like to trade on a part- time basis because you can choose your own time for trading: morning, afternoon, night, during breakfast, lunch, dinner or in your sleep. An individual can view the current market trend & get updated anytime.

    2.  TRANSACTION COSTS ARE LOW:

                                           The cost of a transaction is typically built into the price in forex. It’s called the spread. The spread is the difference between the buying & selling price. The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market condition. For larger transaction, the spread would be is low as 0.7%. Of course this depends on your leverage.

    3.  PROFIT POTENTIAL FROM BOTH RISING & FALLING MARKET:

    The foreign market has no restrictions on trading direction. That means, if you think a currency pair is going to increase in value, then you can buy it or go long. In the same way if you think it could decrease in values, then you can sell it or go short.

    In either case, if your trade goes right then you make profit.

    4.  VERY HIGH LIQUIDITY:

    Because the size of the foreign market is so large, it is extremely liquid in nature. It means that under the normal market condition you can insanely buy & sell currencies as always there will be someone in the market willing to accept the other side of your trade.

    Liquidity is the ability of an asset to be converted into cash quickly & without any price discount. In forex, this means we can move large amounts of money into & out of foreign currency with minimal price movement.

    5.  NO COMMISSION:

    No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail broker are compensated for their services through something called the “Bid / Ask Spread”.

    6.  INDIVIDUAL CONTROL:

    One of the main & fundamental advantages of having a career in foreign trading would be that the individual himself has complete control with respect to making a trade.

    The individual who is involved in the foreign trading business always has the final decision in their hand whether they would like to enter in making trade & how much risk the trader is willing to take with respect to earning his money.

    DISADVANTAGES OF CURRENCY MARKET

    1.  HIGH VOLATILITY:

                                    The high volatility characteristic of the forex trading can either be an advantages or disadvantages.

    The changes in the global politics & economy drastically changes the forecast & diagram about the forex market thus it makes risk & invest money.

    It can cause a huge loss to the investors if the market goes down hill & when a loss is incurred a huge amount of money will go as a loss.

    2.  LOW TRANSPARENCY:

    This is one of the biggest disadvantages of foreign exchange market. Due to the decentralized & de- regularized nature of the foreign exchange market, it is dominated by brokers. And you actually have to trade against professionals.

    A trader might not have any control over how his trade order gets fulfilled, but you may not get the best price or may get limited views on trading quotes as furnished be your selected broker.

    3.  NO CENTRALIZED EXCHANGE:

    Unlike stocks or futures the spot forex market does not have any centralized exchange or clearinghouse. Alternatively, each broker acts as its own exchange & the broker effectively becomes the market maker.

    When dealing reputed brokers in well regulated countries these differences will be small but you need to be well aware of this fact especially if your charting data provider is not the same as your broker, as this may lead to inconsistencies between the planned & actual execution of trader.

    4.  RISK FACTOR:

    There is a risk factor involved in forex trading market. There is a high leverage which results in higher risk involved.

    There is uncertainty of the price & the rate of the currency which ultimately give higher profit or a huge loss so one has to be very focused & knowledgeable about the foreign exchange market where future forecasting can be accurate & profitable.

    There are 10 major reason why the currency market is a great place to trade:

    1. You can trade to any style – strategies can be built on five minute charts, hourly charts, daily charts, or even weekly charts.
    2. There is massive amount of information – charts, real – time news top level research – all available for free.
    3. All key information is public & disseminated instantly.
    4. You can collect interest on trades on a daily or even hourly basis.
    5. Lot size can be customized, meaning that you can trade with as little as $500 dollars at nearly the some execution costs as account that trade $500 million.
    6. Customizable leverage allows you to be a conservative or as aggressive as you like (cash on cash or 100:1 margin).
    7. No commission means that every win or loss is clearly accounted for in the P & L.
    8. You can trade 24 hours a day with ample liquidity ($20 million up).
    9. There is no discrimination between going short or long (no upstroke rules).
    10. You can’t lose more capital than you put (automatic margin call).

     

    Also Read | Risk Reward Ratio in Stock Market

     

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