Currency Crisis

Currency requires nations and countries to hide the value of their currencies at their central banks from other currencies to maintain their value. If there is not enough foreign currency, there are situations such as currency crises. Although these types of crises usually occur with speculative attacks, they can also cause payment and income imbalances. To be protected from currency and currency crises, nations need to establish their economies firmly and constantly monitor them. Various precautions should be taken against sudden developing situations.

What is a Currency Crisis?

A currency crisis means a financial crisis on any currency that leads to destabilization and unbalance in the related market. Such crises are inevitable in poorly managed economies. Such crises can also lead to banking crises and default crises. If measures are not taken quickly, the economies of the countries may be deeply shaken.

An insufficient amount of foreign currency in foreign currency reduces the value of the local currency. The depreciating local currency can also lead to various other economic crises.

Currency Crisis in Cryptocurrency

In cryptocurrencies, which are based on blockchain technology and the first example is Bitcoin, there are many innovative technologies and many unanswered questions. Since it is not affiliated with any central bank or nation, there is no supervisory structure. Instead of such a structure, there is an uncontrolled and decentralized structure. As a result of the decentralized structure, questions about the currency crisis remain unanswered. Transaction information stored in the form of blocks, depending on the crypto chain network in the world, remains intact at the control point.

Investing in cryptocurrencies instead of foreign exchange as we know it causes various problems. The fact that the economy in countries is in crypto money instead of foreign currency reduces the flow of foreign money in the countries. This is one of the things that causes the currency crisis.

But the issue is not limited to this. Especially for stablecoins whose value is pegged to 1 USD, when the algorithm and collateral structure are not well established, the probability of a crisis in the crypto money world is quite high. Because stablecoins have to maintain the balance in their reserves despite the rewards they give in the staking processes and their relationships with other tokens in their ecosystem. The UST – Luna crisis, which brought a popular crisis to investors, can be given as an example of currency crises in cryptocurrencies.