Economics Exchange Rate Systems Questions
A currency crisis refers to a situation where a country's currency experiences a sharp and sudden decline in its value relative to other currencies. This decline is often accompanied by a loss of confidence in the currency, leading to a rapid outflow of foreign capital and a decrease in the demand for the currency. Currency crises can be triggered by various factors such as economic imbalances, political instability, excessive borrowing, or speculative attacks on the currency. These crises can have severe consequences for the affected country, including high inflation, economic recession, financial instability, and a decline in living standards. Central banks and governments often intervene to stabilize the currency during a crisis through measures such as raising interest rates, implementing capital controls, or seeking assistance from international financial institutions.