The rise and fall in the value of the currencies of some countries, draws the attention of many observers of the economic experiences of countries, both successful and unsuccessful.

The economic and social effects of the rise and fall of local currencies have overthrown governments and threaten the thrones of other governments.

There are countries that are economically large, but whose currency is low, and countries that are considered to have small economies and whose currency is high, and behind this are economic motives, some positive and some negative.

In order to put in the hands of the reader a picture of this performance, which raises many questions, we considered it appropriate to address the matter by asking and answering a set of questions.

Of course, these questions deal with those currencies whose price is determined according to the mechanisms of supply and demand, whether in whole or in part. As for currencies whose price is determined according to administrative decisions, they are not the subject of this analysis.

What makes one currency stronger than another?

The currency of any country gains its value from its economic and political strength, and perhaps the dollar has been issued since the middle of the twentieth century until now, the strong currencies in the world, due to the position that America gained after World War II, and the departure of many European countries from this war to America.

When the institutions of the International Bank and the Fund were established, and the issue of the necessity of having a currency acceptable to settle international financial and commercial transactions was discussed, America offered its currency due to its golden cover, and America's willingness at that time to pay the value of any dollar issued from its public treasury with its equivalent in gold.

Then the world accepted the dollar as an international currency next to some other European currencies, but the dollar became the main currency in the international market.

After 1971, US President Richard Nixon announced his country's abandonment of the gold rule, and that the dollar's value is derived from the US GDP, and that any dollar in the market is matched by goods and services that the dollar holder can obtain from the American market.

However, the confidence of many countries in the validity of the dollar, a major currency for settling international commercial and financial transactions, was greatly jeopardized after the global financial crisis in 2008, and from here some countries demanded to search for an alternative currency to the dollar, which America considered a war against and strongly opposed in the meetings of the Group 20 that followed the 2008 global financial crisis.

When does a country's currency collapse?

We must differentiate between the decline in the value of the currency and its collapse. The decline in the value of the currency may be due to emergency factors, or as a result of factors imposed by reality through the weak economic performance of the country towards the outside world, and the decline in the value of the currency may be planned in order to achieve economic goals for the interests of the country.

For example, both America and the European Union have demanded - since 2000 - to raise the value of the Chinese yuan, while China is keen to keep the value of its currency low, because this helps it in the success of its strategy of obtaining the largest share of global commodity exports, and this has been achieved for it, as commodity exports to China It reached $2.5 trillion in 2020.

As for the collapse of the currency, it is achieved in several cases, including:

  • Defeat the country in wars.

  • Political and security instability, which are cases seen in the situation of Iraq, Yemen, Syria, Lebanon, Sudan, Somalia and others.

  • Economic policy has failed to curb inflation.

  • The country is highly dependent on imports, with no exports to match the demand for dollars to meet the needs of imports.

  • The country's involvement in foreign debts, and the government's inability to meet them.

In sum, the concept of the collapse of the value of a currency is the decline in its purchasing power, so that people lose confidence in it, and turn to dealing in foreign currencies, buying and selling, and even in their savings.

Why are some currencies witnessing a sharp decline in their value?

There are many factors that lead to the collapse of currencies, including those related to political or economic aspects.

Among the most prominent economic factors that lead to the collapse of currencies:

  • The inability of countries to pay their debts, as happened in Lebanon from its inability to pay the value of the international bonds that were owed on it in 2019. In such a case, the International Monetary Fund usually announces a negative rating for the situation of this country, which leads to its inability to obtain Other loans from abroad, and may declare bankruptcy.

  • The country’s lack of some of its economic resources, such as the depletion of those resources, or the division of its lands, and the acquisition by a party of the main resource for the flow of foreign exchange, as happened in Sudan, after the secession of South Sudan and its acquisition of all oil wells.

Among the economic reasons for the depreciation of the currency of a country:

The disorder of monetary policy, and its failure to take into account the considerations of other components of economic policy (financial, commercial, investment, and employment), which loses control over the exchange rate, especially if there are large outlets through which speculators enter to control the market.

As a result, citizens lack confidence in their local currency, so they turn to obtain foreign currencies, and this helps to create an unreal demand for foreign currencies, and thus the devaluation of the local currency continues (this was partially achieved in the case of Turkey, but the case of Lebanon was the most prominent) Until the government and the monetary authority succeed in controlling the exchange market and adopting a successful economic policy.

The dollar is a measure of the cost or cheapness of other countries' currencies (Getty Images)

Who are the winners and losers from the collapse or decline of a currency?

Winners from the collapse or decline of the currency:

  • In the first place: the category of speculators, because in the short and medium term of the currency collapse they can buy a large part of the capital assets (factories, farms, real estate, land, cars, etc.) taking advantage of the mistrust of society, and they do so in order to resell these Assets at a higher price than they bought them.

  • The second category that benefits from the currency collapse: the local debtors who must meet their debts in the local currency, and on top of these debtors: the governments that depend on debt to finance their public budget.

  • Also those who benefit from the collapse of local currencies: the owners of incomes in hard currencies, or families that depend on the remittances of their owners from abroad, where they have quantities of cash, which help them to a better standard of living than others.

  • There is a category that benefits from the devaluation of the currency, not its collapse, and they are: the exporters, in the event of the devaluation of the currency and the presence of a production base that helps them take advantage of this opportunity, but if this condition is not met, the decline and the collapse of the currency do not bring any advantages to the exporters.

As for those affected by the currency collapse:

  • At the forefront are the owners of savings in local currencies, as their wealth is eroding as much as the value of the currency.

  • The second category of those affected are: those with fixed incomes, including government employees and the organized private sector, because it is difficult for the government or employers to compensate them with an increase equivalent to the rates of currency collapse.

  • The currency collapse also affects: holders of debts owed in foreign currencies, while their incomes in local currencies,

  • It is also affected by the collapse of the currency: the owners of the import activity, due to the high cost of the import bill, and in light of the rise in prices as a result of the currency collapse, the demand will decline.

Who are the winners and losers of the currency appreciation?

Among those most affected by the rise of the currency are those countries that rely heavily on production and exports, especially if the strength of the local currency came from the flow of rentier revenues, as a result of the export of raw materials.

This phenomenon was known in the global economy as the "Dutch disease".

This phenomenon was called by this name because the Netherlands was one of the productive countries and had a significant share of commodity exports, but after the discovery and flow of natural gas in its lands, its foreign exchange revenues increased as a result of gas exports, which led to a significant increase in the value of its local currency at the time, and the impact of this negatively on its share of merchandise exports.

Among those who benefit from the rise of a country's currency are those who compete with it in international markets, especially that special relationship with international trade.

The rise in the value of a country's currency leads to importers of it heading to the markets of other countries, especially if the goods exported by the country with the rising currency have alternatives and other producers.

Among those affected by the rise of a country's currency are its money markets, as foreign investors, especially those working in short-term investment portfolios, refrain from it.

The rise of a country's currency leads to the exit of foreign investments - direct and indirect - from the markets of countries experiencing an increase in the value of their currency.

Is the dollar's strength good or bad for the markets?

The position of the dollar’s ​​strength in relation to countries - other than America - varies from one country to another, according to the economic policy of those countries.

But for countries that depend on exports, it is in their interest to have a strong dollar, because this helps them increase their share of exports, in light of the depreciation of their local currency, while importing countries are affected by the rise in the value of the dollar, due to the high cost of the import bill.

As for America, its position on following an economic policy that depends on the strength or weakness of the dollar varies from time to time, depending on the economic situation in America, in terms of unemployment rates and trade deficits.

Whenever there is a deficit in the trade balance, America's economic policy tends to reduce the value of the dollar, and to abandon the policy of the strong dollar, in order to be able to increase its exports of goods and services.

What do we mean by hard currencies?

“Hard currencies” is a term for strong currencies that express the economies of countries that can achieve significant stability in their currency, and are covered with balances of gold or large domestic product, and have acceptance in different markets for settling financial and commercial transactions.

These currencies are usually trusted by individuals in developing and emerging societies, as a safe haven for savings.

What are the most powerful currencies in the world?

What is meant by the stronger currencies are those currencies that have acceptance in the international market, and through which commercial and financial transactions are settled.

These currencies are: the US dollar, the euro, the British pound, the Japanese yen, and the Chinese yuan.

These currencies are considered the most important components of the foreign exchange reserve basket of countries, and they are approved by the International Monetary Fund, and the Chinese yuan was the last of these currencies in terms of approval by the International Monetary Fund, at the end of 2016.

These currencies have gained their strength in the international market from the strength of the economies of these countries, and their share of global GDP.

According to the figures of the World Bank database, the countries that own these currencies (America, the European Union, Britain, Japan, and China) had a GDP of $58.4 trillion, which represents 69.1% of the world's GDP, which amounts to about $84.5 trillion in 2020. .

Kuwait's currency is one of the most expensive currencies in the world, according to prices for the year 2020 (Getty Images)

What are the most expensive currencies in the world?

The dollar is a measure of the strength of the expensive or cheap currencies of other countries.

According to the exchange rates available on the World Bank database for the year 2020, we find that there are currencies of countries in the majority of whom are small, such as the Gulf countries or small African and Asian countries, that rank at the forefront of the list of the most expensive currencies in the world, and on the other side there are economically powerful entities and their currency occupies Also advanced in terms of its value in relation to the dollar, such as the euro, the currency of the European Union, the pound sterling, the currency of the United Kingdom, and the Swiss franc.

For example, one dollar equals 0.94 Swiss franc, 0.78 British pound, 0.88 euro, 0.71 Jordanian dinar, 0.38 Bahraini dinar, 0.31 Kuwaiti dinar, and 0.38 riyal Omani.

The Kuwaiti currency is one of the most expensive currencies in the world, according to the prices of the year 2020.

What do we mean by the exchange market and the sale of currencies (Forex)?

"Forex" is an exchange for the exchange of the main currencies - the dollar, the euro, the Japanese yen, the British pound, the Chinese yuan, and other currencies that have strong economic centers, such as the Swiss franc, the Australian dollar and others - instantly, and they are dealt with through electronic transactions, and it is one of the most prominent Forms of currency speculation, in which many stock and bond exchange mechanisms are active, in terms of providing loans to dealers or the process of settlements between sellers and buyers.

The economies of developing countries are affected by the dealings of their citizens in these markets, due to the exodus of their children’s money from the real productive economy in the markets for goods and services, to speculating on currencies in order to obtain quick profits in the “Forex” markets.

There are suspicions about some of the funds that are used in this market, with the aim of money laundering operations, and “Forex” is one of the most prominent images of hot money that confuses some countries, through its entry and exit from the accounts of individuals and institutions operating in this market.