Return to Zimbabwe: the Old Mutual Implied Rate

Let’s hop in the hot tub time machine and head back to the other financial crisis of 2008.

While Bear was having two-dollar bills taped to its headquarters, Lehman was turning into Less-Than, and Citibank was living up to its Shi[see me—ed] nickname, Zimbabwe was having its own economic meltdown despite being pretty much cut off from the rest of the world’s economies.

Zimbabwe’s problem was hyperinflation—the second-fastest episode of hyperinflation in history, as it turned out. At its peak, prices were doubling every day; Zimstat (the statistics agency) stopped publishing inflation statistics; and the episode only ended when Zimbabwe dollarised their economy in mid-2009.

You’d think they’d have learned. But earlier this week we found that Zimstat has ceased publishing inflation data again just when inflation’s started to pop again, because apparently Zimstat hasn’t figured out the whole “object permanence” thing and thinks that if you can’t see inflation it doesn’t exist.

The fun thing is that there’s still one way to back out a synthetic Zimbabwean inflation rate, even if Zimstat would really prefer you didn’t. It’s the “Old Mutual Implied Rate” (the cool kids shorten it to “OMIR”). The OMIR is named for insurance company Old Mutual, which in 2008 was in the unique position of being cross-listed in Zimbabwe (in Zimbabwe dollars) with a hard-currency listing in London (in pounds, back when they counted as “hard-currency”).

So even when the Zimbabwe dollar FX market had completely seized up, you could still synthesize a USDZWD FX rate:

Old Mutual price in ZWD / Old Mutual price in GBP * GBPUSD FX rate = USDZWD FX rate.

And you could assume that the change in the USDZWD FX rate was driven entirely by Zimbabwean inflation, because really, everything else was a rounding error in comparison… so the daily changes in the OMIR became the best proxy that the world had for the Zimbabwean inflation rate.

OMIR-watching was all the rage back in 2008, when some clown with a blog wrote about it a few times. (I even got a shout-out from a new blog called FT Alphaville, which, not gonna lie, was a pretty major career highlight!)

After Zimbabwe dollarised in 2009 and managed some form of sort-of fiscal and monetary stability for most of the next decade, OMIR-watching became less of a sport. Old Mutual even pulled their Zimbabwean listing in 2016. But conveniently, Old Mutual re-listed on the Zimbabwe exchange in mid-2018, just in time to become the macro-tourist benchmark again.

The methodology is still the same as ever, and the shares are even fungible between the Zimbabwean and offshore listings—though the core listing for what’s now known as Old Mutual Ltd is in Johannesburg rather than London (presumably because they’d rather be in emerging markets than submerging markets).

And people actively trade this spread. Shipping Old Mutual shares to Johannesburg has become become the preferred—almost the only—method for extracting cash from Zimbabwe. The Zimbabwean government has imposed minimum hold periods on shares before they’re shipped, because this is a fairly spectacular circumvention of their exchange controls—but until the “arbitrage window” closes completely (hint, it’s not an arbitrage unless the cash comes back into Zimbabwe to close the loop!), the OMIR is going to have its day in the sun.

The easiest source for a daily-updated OMIR level is OMIR.today. If I can get a decent feed of the Old Mutual Ltd Zimbabwe price, I might even add a little display on here… just for old time’s sake.

And there are a few other places where you might be able to derive a similar implied rate to get a peek inside an otherwise opaque economy. The crypto markets in Argentina (on Buda), the Ukraine (on Exmo), and Uganda (on Binance Uganda) aren’t particularly liquid, but if crypto markets in those countries start trading out of line with the reported interbank FX rates, at a premium to the price in global crypto markets—as you can see on CrossCoin.co, shameless plug—it can be a sign that there’s inflation or capital flight going on that isn’t showing up elsewhere.