Hyperinflation has no exact science definition. However, to give you an idea, hyperinflation is when the money supply has increased so dramatically, prices of goods and services increase at an out-of-control state. Hyperinflation therefore is the extreme downward value of currency, extreme downward ability of buying power, and in its simplest definition, meaningless currency as a medium of trade.

In relation to coin investing, one repeated potential coin investor statement that comes up is that when money is invested in coins, one cannot earn interest like in a bank account. Yet when inflation and hyperinflation are considered, interest rate returns at banks are negligible. Why? Because hyperinflation makes a near certainty that there will be a run on banks as people want to physically hold onto their wealth. Yet if wealth equals dollar bills, and dollar bills are valueless, then what does a prudent investor do? When commodity prices are looked at over time, one can easily determine that commodity prices outpace inflation. Therefore, interest rates are not relevant when investing in coins to curb inflation because banks may not survive a hyper inflationary economic status.

Hyperinflation and Coins

Hyperinflation is highly seen as unlikely because it can be devastating. Yet hyperinflation is highly possible if the United States government continues the policies of devaluing the dollar. Sure, there are fancy words for this devaluation such as quantitative easing and “the twist” but it is still just simply printing money. This policy is a method of pumping money into the economy and trying to slow down inflation with dropping interest rates is only a band-aid. Artificially halting inflation creates a monetary system that could metaphorically be described as a spring coil. A spring coil in its normal state doesn’t move. But push down on the spring coil and it takes on pressure, collapsing ontop of itself. What happens when you can’t print any more money and stop pushing down on the coil? It springs up with great intensity. This is a metaphor for how inflation can turn into hyperinflation due to economic meddling by artificial forces. After all, bear and bull markets are a natural part of a capitalist economy. But politicians don’t look very good in bear markets, so meddling is anticipated, expected, yet should be questioned as whether needed.

Meddling Politicians “Drop a Zero” and Coins

Even if hyperinflation occurs, it won’t be allowed to naturally correct itself by playing out its course. Politicians meddle. After all, the solution of “not doing anything” is not seen as a solution. One example of a so-called hyperinflation fix is dropping a zero. This means all currencies are considered 1/10th of their previous value. So a hundred dollar bill now has a buying power of ten dollars. Ten dollars becomes one dollar. One dollar becomes a dime. A dime becomes a penny. And a penny, well, effectively has no worthwhile currency face value being worth .001 cents. The way economists look at this solution is to alter buying power, making higher priced items effectively ten times cheaper. Whether it works or not (and historically it does not work), isn’t of interest to coin collecting. The interesting effect dropping a zero has is not on paper money or digital money, but coins. A coin’s metal value effectively gets multiplied by 10 from the “drop a zero” solution. The face value of a copper penny drops, but copper pennies are valued in their copper, which means the copper penny has a buying power increase of ten times more than before the “drop a zero” solution was implemented. That’s a real win for pennies, and a real win for nickels as well.

Holding value with real coins

Sometimes wealth isn’t about making money, but rather not losing money. If you hold your wealth in coins, and the person next to you holds their wealth in dollars. Hyperinflation will destroy the value of their dollars while inflating the value of your metal wealth in coins. You’ll be holding value while everyone else loses value, making you actually capitalizing and profiting on your coin investment during a hyperinflation economic period.

Coins are real. Holding onto coins are real. And during hyperinflation, when everyone else is making a run on banks, you’re holding your investment safely at home. Taking a small portion of your money and investing in coins is common sense as a safety precaution against bad economic times and a smart move to take advantage of commodity prices during a good economic time. Whether it’s the one cent coins or five cent coins, you’re making a sensible investment in cents (read How to Make Money off of Copper Pennies). And that just makes sense.