How to Protect Your Money If Hyperinflation Sets In

Buying gold can be a hedge against hyperinflation.
Buying gold can be a hedge against hyperinflation. (Image: Stockbyte/Stockbyte/Getty Images)

Hyperinflation is caused when there is a large increase in inflation and money loses its value. During hyperinflation, there is more money is in circulation, and prices rise dramatically. At the same time, because the currency is worth less, it takes more and more money to buy the same amount of goods or services. In extreme cases, such as Germany in the 1920s and 1930s or Zimbabwe in 2000s, inflation could reach more than 10,000 percent – causing prices to rise several times a day and money to become almost worthless. Hyperinflation is rare, but if it does come, there are some steps you can take to protect your wealth.

Protect your investments by moving them to companies that produce goods and services that are naturally protected against inflation. Producers of essential goods, such as energy, and providers of essential services, such as telecommunications, may be cushioned against hyperinflation.

Get rid of your cash. During hyperinflation, cash and savings bonds become almost worthless. Instead, use the cash to buy goods that do not tend to lose their value over time, such as jewels, gold or artworks. Instead of buying physical gold, consider buying gold shares by buying shares in an Exchange Traded Mutual Fund that owns gold bullion.

Purchase Series I Bonds. These are treasury bonds that come with a fixed interest rate and are automatically adjusted to increase or decrease with the rate of inflation. The inflation rate is adjusted twice each year and added to the fixed rate to give a composite interest rate on the bonds. You can buy as little as $25 worth of I Bonds, but the maximum is $5,000 a year. Interest accumulates over the life of the bond, but is only paid when you redeem the bond. I Bonds are tax-exempt if used for education.

Purchase Treasury Inflation Protected Securities. This is a treasury bond that is adjusted for inflation and pays interest twice each year. In a TIPS bond, the interest rate is fixed, but the principle is adjusted to match the rate of inflation.

Reduce your expenses. During hyperinflation interest rates rise dramatically, so it takes more money to pay interest on things such as your mortgage or credit cards. You can cushion yourself against this by making sure you have a fixed rate of interest on major purchases and by paying down or paying off your mortgage, your car and your credit cards before hyperinflation sets in.

Learn a skill that you can barter. During hyperinflation, many people turn to bartering, rather than spending cash. If you have a skill or trade such as plumbing, computer repair, knitting or sewing, you may be able to barter this for other goods and services and save the cash. If you have a large garden, consider growing vegetables and bartering them for other goods and services you need.

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