When does the currency of the country falls down?
Answer:
A lot of things influence currencies. When the currency falls down, there's another term for this: It's called inflation.
The following things encourage inflation:
- Spending money. (People spend their savings and then they borrow some and spend that too. Government does the same. They collect taxes. That's not enough, so they borrow more money and spend all of it. As a result, there's more money in circulation.)
- The central bank can lower the interest rates. (By lowering interest rates, the central bank encourages people borrow more money and spend. This often happens during or after a depression. The central bank does it in order to stimulate the economy.)
- People lose confidence in the country's government. They lose faith in the government. They lose their trust. (This can happen if the country was in a war and lost the war. This can also happen if the people determine that their government is financially irresponsible and unstable. If people lose confidence in their government, the currency can fall very rapidly.)
- Bad accounting by the government. (If the country's government reports that they have X amount of debt and later someone finds out that actually the debt is 10 times more, then the currency will fall as soon as the word gets out, because people lose faith in the government and also they just find out that there's more money in circulation than they thought.)
- The currency is deluted by the government. (This can happen if the government needs more cash. If they want to spend more money and they don't have enough, then they just print more money. They have the ability and authority to do that, but this can lead to severe inflation!)
- The currency is deluted by another government. (This can happen if your country is at war with another country, and the enemy government decides to print Your money in order to cause inflation in your country to weaken your country financially. I think it was last year in the news that Americans seized a N Korean cargo ship full of American dollars. This was an act of war. N Koreans are secretly trying to hurt America's currency.)
When there is more money in circulation than goods to buy.
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