So they put out a 50 trillion dollar Zimbabwe note just now, just weeks after being in the news for having $50 million notes.
I think I’m just smart enough to see where it’s headed next.
What is the practical impediment that makes it so I can’t I make a fortune taking a short position in the ZWD? I’m assuming it’s some form of illiquidity, lack of a market maker, etc.
You’ve picked the obvious issue-no real market. Even if there was a market, though, you’d still not have much luck. Especially in such an easy case, the market would price-in the predictions you’re looking at.
When you short something, you borrow a unit of it, sell it, and hope that you can buy some back later. In order to make money shorting, you’ve got to (in very simplified terms) sell to people who think the thing you’re selling will do better than you think it will.
Think about the person you’re trying to sell to (and you need one to make it work)–he sees the same market you do. He’s not going to buy something almost guaranteed to drop precipitously in value–so he’s only going to want to buy at a price he thinks he can beat when selling the Zimbabwe Dollars you sold him.
If you both think (say) the ZAD will drop from 100 to 90 tomorrow, he’s going to take that into account when offering to buy from you. The real opportunity to make money will be deals between the person who thinks the ZAD will drop to 85 and those who think it’ll drop to 95.
Similarly, think about whatever broker you’re ‘borrowing’ the ZAD from to short. You’re asking them to give you Z$100 now, and then in a week you’ll give them Z$100 back. They’re not going to do that for free, and they’re going to figure out how much to charge you based on their prediction of how far the ZAD will fall. Again, you aren’t going to make money because the broker has the same prediction you do, and isn’t going to be stupid enough to ‘loan’ you Z$100 (say worth 1) and have you return it next week, (say worth 0.01) without charging you at least $0.99 to make up for what they’re going to lose on the deal.
But the big deal is still liquidity. With such huge drops in price likely, nobody wants to buy ZAD. They don’t want to bear the risk of having to find a buyer when the currency gets even worse.