How can a currency lose its value?
In: 2
1) The most common method would be people losing faith in it because their government just keeps printing more and more of it. Zimbabwe is a good example of this. They experienced years of hyperinflation–a peak inflation year-over-year of 89.7 SEXTILLION percent. They were printing 100 TRILLION dollar bank notes–you can still buy these on eBay (for less than 100 trillion USD). They eventually scrapped their own currency and adopted the USD.
2) Another way for a country’s currency to lose its value is if it stops being a reserve currency. Central banks hold many different types of currency to avoid fluxations in prices. The most held currency in the world is the USD which accounts for around 58% of holdings. The second most held currency is the Euro with around 21%. The Yen and UK Pound are around 5% each, with the Yuan and CAD having about 2.5% holding. If for whatever reason, one of these countries lose their reserve status (central banks no long use them), then their value could drop precipitously.
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