How do countries end up with worthless currency? Like countries who’s dollar bills lie on the ground or are burned for warmth because it has no purchase power anymore
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So, it generally happens to countries that cannot make all the things the people need to survive or othetwise has debt in a currency that country doesn’t control. Typically, food, energy, and medicine are the items that get them into trouble. So, the country needs to buy those from other countries which means they need to get their hands on that currency. There are a few ways to do this, export enough of other things to balance out what they need from other countries, et direct aid from other countries, use their currency to buy the currency they need on foreign exchange markets, or borrow that currency. The last 2 are what get countries in trouble.
It is worth mentioning, particularly the foreign exchange case, that it isn’t always the government acting directly. And, it can get more indirect, but the net result is the same. For example, if a country imports more food than it exports other things, the importers get paid in local currency and have to convert it to their sellers currency to pay for the imports. I will shorten the indirection by just saying people need dollars to buy food and get it on foreign exchange markets, driving down the value of their currency.
Now the government is going to notice that people can’t afford food, and do something about it either because they are not monsters and don’t want people to starve or are just trying to avoid revolution. They might try to borrow their own currency from the wealthy which goes to the importers making the problem worse. They might just print the money which also goes to the importers making the problem worse. They might try to borrow dollars and use that to buy food directly. That can stave off starvation and inflation temporarily, but if lenders won’t keep rolling the debt and interest over, and the trade deficit doesn’t get corrected. The government either prints or borrows local currency to try to buy dollars to pay off its debt and again crashes their currency causing hyperinflation. Basically, without dealing with the root cause of having to import necessities or other countries just straight up financing exports to that country to keep unemployment down in their country it becomes an inescapable self sustaining trap short of mass suffering and death.
What people are going to comment with is, but Weimar Germany was printing marks that is the cause. No, the cause was a massive debt in Gold marks for reparations from WW1, and a misunderstanding of what paying reparations between countries really means. The Allies needed to turn around and use the gold marks to buyvstuff from Germany which would allow Germany to continue paying ots reparations. The reparations were not really the marks but the stuff that Germany made.
Zimbabwe land reform led to it not being able to feed its people. And, food imports drive its currency problems.
Venezuela is interesting because it’s oil resources should make it so it doesn’t have to borrow dollars. But, between corruption siphoning those dollars to elites and sanctions, Venezuela has foreign denominated debt in order to buy medicine.
Oh and anyone who claims, “well they just need to get competitive and have a trade surplus.” Sure, every country should have a trade surplus and the world economy will be perfect. /s
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