Currency Crisis
A currency crisis is a situation in which sudden devaluation of a country’s currency occurs due to a lack of confidence in its economic policies. It can also occur when there is an abundance of foreign exchange supply, resulting in sharp and rapid declines in the value of a local currency. Currency crises usually involve speculative attacks on the domestic currency by investors who expect it to depreciate further and are trying to profit from the situation.
The most common causes behind these crises include: macroeconomic imbalances such as large current account deficits; fiscal mismanagement; political instability or unrest; structural problems with financial markets, such as inadequate regulation; banking sector weaknesses; and excessive external borrowing.
When facing a currency crisis, countries often turn to capital controls – measures designed to limit capital flight – as well as other policy interventions like raising interest rates or introducing quantitative easing (QE) programs that stimulate aggregate demand through increased money supply. In some cases, countries may even resort to using cryptocurrencies for international payments instead of their own currencies if they fear for their future value stability due to loss of investor confidence or other factors leading up to the crisis.
It should be noted that cryptocurrency prices do not always remain stable during periods of extreme volatility – due largely in part because cryptocurrencies have no central bank backing them up and thus tend to follow market forces more closely than traditional fiat currencies do when faced with uncertainty or crisis situations . Therefore, it is important for cryptocurrency holders and traders alike pay close attention both news related events affecting emerging markets where cryptos are popularly used (eg Venezuela) as well as global geopolitical developments that could affect crypto values on a larger scale basis (eg Brexit).
