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What is Hyperinflation?
“When monetary inflation occurs at a high rate, the phenomena is called Hyperinflation.” To put it simply, when the prices of goods and services increase at a rate greater than 50% a month, we call it hyperinflation. The prices of simple everyday things like bread and butter increase rapidly and reach a point of no return. All the savings of the people of that affected country become useless, and people start starving.
Hyperinflation is the worst nightmare for the economy of any country. But it doesn’t happen on its own. There are some derivatives that cause hyperinflation.
What Causes Hyperinflation?
In simple words, when a country starts to print more currency than its gold reserves to pay its debts, hyperinflation starts. When the supply of money is increased in a country, the prices of everyday items also rise, and the currency loses its value and renders the people helpless and poor.
Hyperinflation is mostly caused by poor economic decisions, corruption and war conditions. Getting out of this storm is really hard, and most countries default because of this.
An example of a country facing this hyperinflation phenomenon is Zimbabwe. The country started to print more currency notes than it could have afforded in 2008 to pay for the war going on in Congo. Unable to pay its debt, Zimbabwe now uses the US dollar to carry on its daily economic activity. The citizens still gather food and related items to prepare for another round of economic collapse like the country faced nearly a decade ago.
Preparing Against it:
Hyperinflation is as scary as it sounds, and most of the countries and especially third world countries need to be prepared for it by doing certain things with their economy. Steps to eliminate the risk of Hyperinflation include diversifying assets and buying bonds from various international markets that might help you in the time of the collapse.
Trading in international markets and investing in gold might also prove beneficial. Gold is known for its healing effect on the economy in harsh times. Let’s take a look at the role of gold in shielding a country against hyperinflation.
Gold and Hyperinflation:
Gold is not a new thing; this precious metal has been around for around as a currency for over 3000 years. Gold is not only a good short-term investment; it has also proven its worth in long-term plans of many financial sectors.
You can consider gold as a hedge against hyperinflation. It not only retains its value in this period but in some cases it outpaces hyperinflation.
Take for example the hyperinflation that occurred in Germany in the 1920s.
“The price of one ounce of gold was 170 marks (currency of Germany at that time) before hyperinflation. But as the value of money dropped, an ounce of gold cost 87 trillion marks at the end of this period.”
By going deep into stats, we can see that gold price increased 1.8 times faster than the inflation rate. So, gold did what it is supposed to do. As the currency became cheaper, gold prices skyrocketed to retain its value.
Savings vs Gold Investment:
Today, most of us save the extra money we have in our bank accounts to get a decent interest over time. But when hyperinflation happens, your savings wiped out because they lose their value and hence become useless.
But gold behaves differently. It outpaces the inflation rate to save your investment. Your purchasing power may even increase if you have gold in such conditions. So, between currency and gold, you should choose gold as an investment.
By analyzing all the aforementioned data and listening to the financial experts, it becomes quite clear that gold really can save a person or a country from hyperinflation.
That is the reason many countries today like to invest in gold for a longer time period. If you have some extra money and you are looking to invest it somewhere then definitely go for the gold investments. At last, everyone likes to be prepared for a rainy day. Gold is beneficial for both short-term and long-term investment. And it hedges against hyperinflation.