Question

1. What are some reasons, examples, why some money fails? Give an example.

Answer 1

Money is the most accomplished medium of exchange today. Although digital currencies and cryptocurrencies are on the rise and there are alternatives to the paper currency, they all are forms of currency and forms the basis for exchange in the modern economy. The value of a currency is influenced by many factors and the fluctuation of each individual factor would affect the value of the currency and would decide the success and failure of the currency in the international market. For example, the American dollar is deemed to be a strong currency in the international market which means that the currency has a strong demand in the economy and the international trade and thus the exchange rate of this currency would be higher. On the other case, the Zimbabwean dollar is of very low value in the international market and thus would have lesser demand in the international trade market. The following may be considered as the reasons for the failure of some currencies with respect to others.

· The economic conditions affect the strength of a currency and phenomenon like high inflation would reduce the value of a currency in the international market.

· The civil and political stability of a nation influences the stability of the currency and the unstable political structure may lead to lowering the strength of the currency and instability in the economy.

· The corruption and similar practices in the economy may lead to lowering the scale of the economic value of currency in the international market and thus may induce failure of the currency.

· Economic sanctions would create a level of disrupt in the international economic scenario and thus may lead to failure of the currency.

· The uncontrolled government spending may lead to massive changes in the budgetary allocations and thus may induce the failure of the currency.

· The strength of industries and the local economy would decide the strength of the currency and thus may induce failure of the currency.

Thus, all the above factors may induce the failure of the currency of a nation and hence an analysis of the same has to be done while fixing the conditions of economic exchange in the international market.