Many times people talk about having a “gold-backed” currency, as a way to combat a dollar that loses value over time. But this month we have another example in the news that illustrates why owning gold directly is often a better hedge against currency devaluation.
Six months ago, the Reserve Bank of Zimbabwe began issuing and using a gold-backed currency called the “ZiG” (short for Zimbabwe Gold), to help break away from using the Dollar for most transactions.
With gold making new records this year against the dollar, the ZiG should be appreciating against the dollar. Instead, it has lost half of it’s value. How could this be, and what does this mean for those of us living in the dollar universe?
Regardless of what a currency is “backed” by, it is only as trustworthy as those managing the supposed backing, and the willing of the populace to trust the managers. This confidence has already been eroded. While the official value of the ZiG is 50% lower in dollar terms, the black market rate experienced on the streets of Zimbabwe has devalued the ZiG by 70-80%.
As Americans we should take heed, and use the current buying power of the dollar to purchase gold directly for the long haul. Owning gold is a better hedge against devaluation than any “gold-backed” currency.
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byBill Stack