World economic history recorded cases when strong and steady national currency collapsed within a few days, forcing a country to pass over to the barter, as the money ceased to represent any value. The most dramatic currency collapses were caused by extremely weak state of the domestic market and problems in the national economy.
Current declines in currency
Nowadays, in the time of financial regulators and variety of tools, which can influence on the economic situation, it is still possible to damage national monetary system within a few months just by making ill-considered political decision. Practice of Zimbabwe can illustrate that it is quite possible. In 1999 government of this country started illegal confiscation of land from European business people, who had cultivated this land for many years. The confiscation was aimed at providing local people, especially war veterans, by the land property, enabling them to earn income. This ill-considered decision resulted in instant withdrawal of the foreign capital from the country, which caused collapse of the national currency. By 2008, when the local people refused to cultivate land, investments to the country stopped completely, price of food raised up to billions, growing up every 1.5 or 2 hours. In the period of escalation of tension from 2000 to 2009, government did not take any measures for economic recovery. In 2009 government decided to abandon national currency and introduce free circulation of the USD.
Postwar defaults in the currency market
After the end of the Second World War the aggressor countries have experienced devastating effect of the galloping inflation. Hungary was the country that suffered the most from the collapse of currency in 1945. Hungarian industry was completely destroyed after the war and the country did not have sources of subsistence. The prices grew by 4 times every day and government started to issue new notes - quadrillions. In 1946 government introduced a new currency –the Forint, which helped to stop inflation.
A striking example of the postwar collapse is illustrated by the conditions in Greece after the Second World War. Greek economy was paralyzed, as the country had to pay huge funds to Germany as compulsory borrowings. The famine, which followed after that, crippled the economy completely, causing steady, everyday rise in prices.
The most famous minor decline in currency
Surprisingly, the most well-known case of the currency decline in the world was a Black Wednesday in 1992, when British Pound fell by 4.49% against the USD and by 2.52% against German Mark. Although the exchange rate fell insignificantly, the fact became well-known in the world for a number of reasons:
- It was the first significant decline in the British currency, which has always has a reputation of the reliable and strong currency;
- According to various estimates, due to this decline, American financier George Soros earned from 1 to 1.5 billion USD;
- It is considered that the collapse was created deliberately by a person, who did not belong to the ruling elite.
The belief that there was a connection between the collapse and actions of Soros is based on the fact that the fund “Quantum”, which belonged to the financier, had purchased the Pound within several months. Allegedly, within one day, on 16 September, Soros sold British currency for the amount to 5 billion, and bought German marks. By the end of this day Soros bought back all the funds. However, according to mathematical calculations actual amount of sales of GBP was much bigger, and this fact was later confirmed by Mr. Soros. Note that, tension in the market started on 9 September, and actions by a financier have just accelerated the process.
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