A North Korean wake up call for savers
North Korea provided a stark warning of how governments can damage personal savings when millions of its citizens were left with banknotes barely worth the paper they're printed on.
You thought last year's stock market fall was painful for your portfolio. But imagine if your cash savings took such a big hit, that they literally became worthless overnight.
The poor North Koreans don't have to imagine. It's just happened to them. The government has slashed the value of its currency the won - by a factor of 100. In other words, what was 100 won last week, is now just one. Millions of the country's citizens have been left with banknotes barely worth the paper they're printed on.
Food prices have soared and there's mass panic. North Korea's hardline communist regime fears there may be rioting, out of pure desperation. But why did they do it?
The authorities want to keep a firm grip on the country's private wealth creation. But "the move may also have been intended to curb inflation", says Malcolm Moore in The Telegraph. He quotes a North Korean trade worker's comments that: "the inflation problem was so serious, there would have been no other way but the currency reform, but it just strengthened people's distrust in the North Korean won".
It's a salutary reminder of how the authorities can damage personal savings and a country's credibility.
Of course, Britain isn't going to follow North Korea. But we could be storing up an inflation problem for the future too. At the last count we were still in recession. Even worse, business investment is falling at a staggering 22% yearon-year.
That's despite the fact that we've been printing lots of money - £200bn already, equal to almost 15% of our annual output. For now, the banks are holding onto most of it. And, so far, only house and share prices have gone up. But the increased supply of pounds has hit sterling hard, pushing up the prices of imported goods. And there's a growing risk of UK consumer prices climbing again next year to over 3%.
UK savers may not suffer the North Korean solution, but rising inflation will still hurt. But don't panic. It's still possible to protect your nest egg, as my colleague Ruth Jackson advised recently: How to make sure your savings beat inflation. (Note that the Birmingham Midshires bond has since been withdrawn, but the other products are available).
And if you're going off the idea of paper money full stop, as we've said many times, there's always the ultimate inflation hedge gold. Here's a recent article from MoneyWeek magazine on how to buy it: A bite from the gold bug is good for your wealth. (If you're not already a subscriber to, subscribe to MoneyWeek magazine.)