If you study enough history, patterns begin to emerge. Certain major events become cyclical, with even the most extraordinary circumstances having precedents. This is true for both paper money and for gold, as we can see from the recent failure of a nation’s currency and that nation’s turn to physical gold. But could this failure also be a sign of things to come for our nation’s own currency, the dollar?
After years of hyperinflation, Zimbabwe is now backing their currency with gold.
The Zimbabwean dollar, also known as the Zimdollar, has suffered from one of the most notorious cases of inflation in recent history. By early April 2024, the Zimbabwean dollar had fallen by 73% in international trade since the start of the year, according to Bloomberg. These problems weren’t new for the currency, which had already suffered from extreme inflation, diluting its purchasing power to near worthlessness. The issue had become so severe that many Zimbabwe citizens had stopped using Zimdollars in daily transactions, according to Reuters, with many instead using foreign currency like U.S. dollars.
Zimbabawe has been forced to dramatically change their currency in response to these issues. On April 5, 2024, the central bank of Zimbabwe announced that it will replace the Zimbabwean dollar with a new gold-backed currency called the ZiG, which is short for “Zimbabwean Gold.”
Zimbabwe is not the first nation to suffer from hyperinflation, and it is also not the first nation to turn to gold as a stable currency.
Throughout history, many currencies have fallen, and countries have returned to gold.
Fiat currencies—money that is not backed by an underlying asset like gold—are vulnerable to inflation. Since there is nothing physically limiting the issuing government body from printing more of such a currency, inflation sets in as larger amounts of money are created, often to pay off government debts. “Hyperinflation” refers to a cycle of inflation so severe that a currency approaches worthlessness.
This cycle has occurred many times throughout history—even in ancient China with the earliest recorded forms of paper money. With these historical cycles in mind, it’s worth asking: Is the dollar vulnerable to the same fate?
As the dollar’s place in the world looks more precarious, gold looks more attractive.
It’s not hard to see that the U.S. dollar may be on a trajectory like those of other failed currencies. Like many other nations that have fallen victim to hyperinflation, the United States has incurred massive amounts of debt and increased its currency supply to help pay that debt off and stimulate economic growth. The dollar is also losing favor in the international marketplace, with nations like China aggressively moving away from holding dollar-denominated assets.
If history repeats itself and the dollar—currently the world reserve currency—falls because of hyperinflation, it’s very possible that we could witness an international return to gold and gold-backed currencies. Whether it happens soon or far into the future, I’m convinced that now is a great time to diversify my own portfolio and financial legacy with physical gold.
