What is a currency crisis? When a currency suddenly collapses
By SendPay Business · · 2 min read
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A currency crisis is a sudden, sharp fall in a currency's value, often when a government can no longer defend a fixed or managed exchange rate. Prices of imports jump, savings lose value abroad and borrowing in foreign currencies becomes much harder to repay.
Why they happen
- A country holds its currency at a fixed rate that markets no longer believe.
- Foreign currency reserves run low as the central bank buys its own currency.
- Large debts in foreign currency become harder to service.
- Investors rush to sell before the fall, which speeds it up.
Black Wednesday, 1992
On 16 September 1992 the UK tried to keep the pound inside the European Exchange Rate Mechanism by buying pounds and raising interest rates. It failed, and that evening the government withdrew the pound from the mechanism and let it fall.
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The Asian financial crisis, 1997
In July 1997 Thailand stopped pegging the baht to the dollar and it fell sharply. The pressure spread to Indonesia, South Korea, Malaysia and others, and several countries turned to the International Monetary Fund for support.
What it means for everyday money
During a crisis, exchange rates can move a lot in a day, spreads widen and some countries bring in exchange controls. Holding money in more than one currency is one way people and businesses spread that risk.
Where SendPay fits
SendPay platforms let customers hold GBP, EUR and USD and exchange between them at a fee the platform owner sets, powered by licensed partners. SendPay doesn't offer trading.
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Questions people ask
What does a falling currency mean for me?
See the effect on import prices, savings and debts.
Currency devaluation calculator →What is a currency peg?
When a country fixes its currency's value to another currency.
Currency pegs →What is currency devaluation?
When a currency's official value is lowered against others.
Devaluation →What are exchange controls?
Government limits on moving money in or out of a country.
Exchange controls →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.