Let’s talk about the most dramatic currency collapses
The world economy history knows the cases when in a few years a currency, that seemed steady and strong, collapsed so dramatically that, actually, barter system was returned, as money didn’t have any value. The most colossal currency collapses are caused, as a rule, by weak domestic markets and the national economy problems.
The most modern currency default
In the modern age of financial regulators and numerous ways to influence economy, as Zimbabwe example shows, one snap but significant political decision can crash down domestic monetary system in a few months. In 1999 the country government illegally began land confiscation from European businessmen who had been farming it for many years. The confiscation was aimed at providing local people, in particular war veterans, with land and, consequently with incomes. Such negligent decision caused massive capital outflow which triggered currency collapse. By 2008 because the local residents had refused to cultivate the land they had, the investment in the country ceased completely, food prices were calculated in billions and raised every 1.5-2 hours. In the period of growing tension from 2000 till 2009 no economic reconstruction were taken. In 2009 the country's government decided to give up its national currency and use US dollar instead.
Post-war defaults in exchange market
After the end of the Second World War aggressor countries experienced the destructive effect of rampant inflation. Hungary suffered from the currency default in 1945 the most. The country, after the negotiations forced to pay all the participating countries huge reparation, devastated after the long war with completely destroyed industrial sector, was left destitute. The prices rose by four times every day and the country’s government began to issue bills of trillion, quadrillion, etc. denomination. In 1946 a new currency, forint, was introduced in the country. It allowed to stop inflation.
A vivid example of post-war defaults is that in Greece. The country's economy was ruined because of the necessity to pay Germany huge occupational fees. Following it starvation completely crippled the economy and caused a sharp increase in prices every day.
The best-known slight currency collapse
It is a paradox, that the best-known currency default in the world was the Black Wednesday in 1992 when the British pound devalued against dollar by 4.49% and against deutsche mark by 2.52%. Although the rate fell down insignificantly, the case became the world famous due to several reasons:
- this was the first significant downfall of English currency, having been considered the most reliable currency in the modern history;
- during the default, American financier, George Soros, took profits estimated from $1 billion to $1.5 billion;
- the default is considered to be created by a person who didn’t belong to the ruling elite.
Legendary British pound default. That was it financier Soros made his legendary fortune at
The connection of the default to Soros actions is proved by the fact that the financier’s fund “Quantum” had been buying pounds sterling for several months. Rumor was September, 16 there was a one-time sale of 5 billion of pounds and deutsche marks were bought. By the ens of the day Soros had bought them back. But mathematical calculations show that the real amount of pounds sold must have been much more, later Soros himself confirmed that. Nevertheless, it should be noted that the market tensions began as early as September, 9, and Soros actions only hastened the local apogee.
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