The strength of a nation’s currency can be directly linked to that of its economy, and over the years this has been a common area of concern for governments around the world. There are many examples of countries which have changed their currency throughout history. With that in mind, let’s look into some of the conditions which may lead to such an event.
Globalization has brought the world closer together and this has seen a huge rise in currency being sent around the world. International money transfer apps have facilitated low cost transfers around the world. As more money is sent and received, the importance of a stable currency has never been more important, and this is why some countries look to change their currency altogether.
Creation of a Union
One of the biggest currency changes which we have witnessed in recent years was the euro, which sought to solidify many countries in the European Union under a single currency. The aim of this was to strengthen the European bloc and increase trade opportunities between countries within it.
Importing and exporting is made incredibly easy with open borders and a single currency, and the results certainly proved that. We are currently seeing something similar happen in West Africa, after 15 countries signed up to change its currency to the ‘eco.’ This is yet to be implemented, but the reasons behind the change are clearly linked with strengthening economies and improving trade.
Stabilizing an Economy
Whilst quantitive easing approaches such as printing more money can support a countries economy, it has to be done in a calculated fashion. If this is not done well then inflation can easily kick in and this can even lead to hyperinflation. If hyperinflation happens then you can easily lose purchasing power and ultimately destabilize an economy. The smart option in such an event is to create a new currency and start again.
In 2008 we saw an extreme case of this in Zimbabwe, which had a daily inflation rate of 98% which left the country in chaos. To remedy this, the national bank adopted the US dollar and the South African rand, which helped the economy to stabilize. Introducing a new currency cannot be done overnight, and it does take very careful planning to get right.
New Nation
And a final reason as to why a country may look to take on a new currency is that it is a newly independent nation. This is something which we have seen most recently since the collapse of the Soviet Union, when many countries found themselves with independent status. Often a new currency will be heavily pegged to an existing and strong currency, will helps with the early years of adoption. This is why for example, there are so many nations in Africa which are heavily impacted by the movements of the dollar, as they elected to peg their currency to it after gaining independence.
This is not something which happens often, but there are a number of scenarios in which a new currency is necessary for a country.
***
Author Bio: Tricia Lee is a contributing writer at Sparkwebs, a Digital Marketing Agency. When she’s not writing, she loves to travel, dance, and read non-fiction.
Photo Credit: stock photo