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Currency and Precious Metals in Failed Economies

Published on 1/11/2022 by APMEX

A variety of Gold and Silver, both coins and bars, set on a grey background.

What will people use for currency if the economy fails? This is a question that gnaws at those who wish to prepare for every eventuality. Of course, history shows there will undoubtedly be some bartering within communities, so your goods and skills will become commodities. But what else? The answer lies in intrinsic value. Precious Metals offer stability, intrinsic value and have always represented buying power.

Gold and Silver are two of the most common Precious Metals used as currency in failed economies. In fact, throughout history, Gold has been considered the ultimate form of currency. It is scarce yet malleable enough to be turned into coins. Silver also possesses intrinsic value and is more abundant than Gold. This makes them an ideal form of currency for failed economies.

Interestingly, in failed economies, the use of fiat currency often decreases. Fiat currency is backed by the government or a specific organization, whereas Precious Metals have intrinsic value. When a country's economy fails, people lose faith in paper money and begin to barter. Precious Metals represent a stable form of currency that will never depreciate.


Reasons Why Currency Can Fail

Fiat money, or currency that has no intrinsic value, can fail for several reasons. One reason is hyperinflation, which can be caused by factors such as an increase in the money supply without a corresponding increase in the goods and services available for sale. This can lead to a devaluation of the currency, as people lose faith in its purchasing power.

The value of fiat money (paper currency) is dependent on the economic situation in each country. For example, when hyperinflation of over 50% per month struck Germany in 1923, people burned stacks of money. That's why all currencies today are just symbols backed by trust in the economy and government.

Also, if the economy collapses, it may become impossible to transact business. Crime will rise and bartering will be the only way to get what you need.

There are several types of failing currencies in failed economies: failing fiat money, hyperinflation, no faith in government or banking system, failing paper money (end of empire), military invasion or collapse of the government. The reasons for failing currencies can be divided into external and internal factors.

External Factors: Natural disasters, war, economic sanctions.

Internal Factors: Government mismanagement, printing too much money, corruption, failing banking system.

When a currency collapses, people lose trust in it and switch to other forms of money, such as Precious Metals or commodities. In some cases, the government may try to re-establish faith in the currency by decreeing that it is now legal to transact business again. However, this will only work if the government is stable and the people have faith in it. Otherwise, the failing currency will continue to lose value until another form of money eventually replaces it.

Examples of Failed Currencies

Throughout history, there have been many examples of failed currencies. Some of the most famous are the Continental dollar, the French assignat, the Weimar Republic mark, and the Zimbabwean dollar.

The Continental dollar was a paper currency issued by the United States during the American Revolution. It was backed by debt certificates and was not convertible to Gold or Silver. This caused it to lose value quickly, and the dollar eventually replaced it.

The French assignat was a paper currency issued by the French Republic during the French Revolution. It was also backed by debt certificates and not convertible to Gold or Silver. This caused it to lose value quickly, as well, and the franc eventually replaced it.

The Weimar Republic mark was the paper currency of Germany after its defeat in World War I. Hyperinflation occurred and made it virtually useless as a form of money, and the rentenmark replaced it.

The Zimbabwean dollar is perhaps one of the best-known failed currencies today. It began as a multicurrency system with the Zimbabwean dollar, South African rand, and British pound in 1980. By 2006, however, it began to lose value as hyperinflation struck rapidly. It was replaced by a multicurrency system featuring the U.S. dollar and several other foreign currencies.

A Haven From Economic Uncertainty

In the case of an economic collapse, Precious Metals offer three things: intrinsic value, protection against inflation and safety from the looming threat of war. Today's Precious Metals market has many safe-haven investors. In times of geopolitical crisis, high inflation or currency devaluation it is traded as a commodity and its traditional role as a store of value.

Buying physical Gold and Silver means that when your fiat currency becomes useless in a catastrophic event, you would still have the means to attain your necessities. Further, Precious Metals' purchasing power has remained relatively stable, meaning the same amount of Silver would get you roughly the same amount of goods in 1950, 1980 and right now. In the event of a failed economy, that kind of security is worth its proverbial weight.

In failing economies, precious metals have been used as currency more than ever. This is for a good reason: Gold and Silver never lose their value. They are malleable, so they can be easily divided, which is essential in societies where not everyone has the same level of wealth. And most importantly, Gold and Silver are rare – meaning that not everyone can produce them, giving them an inherent value.

For any questions regarding the eligibility of any specific products in your investment portfolios, APMEX recommends consulting a financial advisor or professional.

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