Currency Devaluation is a depreciation in the value of a currency within a fixed exchange rate. Devaluation is, at times, a deliberate attempt by the monetary authorities of a country, to improve their trade balance. Devaluation can boost exports, which can further reduce the trade deficits that may cause a problem if not controlled. Rapid decline in the value of a currency which is not deliberate or controlled is a symptom of Hyperinflation.
When a country is in Hyperinflation, the value of a local currency is in free-fall and the cost of goods increases. People who hold a currency that is in severe hyperinflation, are obliged to drop their investment and move to a more stable currency. This is done in order to protect the investment, and invariably, it further weakens the value of the domestic currency.
See also: What Causes Currency Fluctuations?
Read on to know more about some of the Worst Currency Devaluations in History.
1. Venezuela (2016 – Present)
Venezuela has been in an economic crisis long before 2018. Things took a turn for the worse, specifically in August of 2018, when the Maduro Government devalued the Bolívar fuerte, by replacing it with the Bolívar soberano. The currency code also changed from VEF to VES. The new VES is effectively worthless and things weren’t much better earlier. All of this meant that Venezuela had to cope with a 95% devaluation of its currency.
With the advent of this new currency came the ridiculously inflated denomination. A chicken cost around 15 Million VES, which equated to a mere 2 USD. Even a toilet roll would cost above 2 Million VES. The need for such large cash meant people would prefer electronic transactions, as opposed to carrying trunks of cash just to buy essentials. Similarly, a lot of Venezuelans left what was once one of the most prosperous countries in Latin America, for greener pastures in Brazil and Colombia. The International Monetary Fund (IMF) had forecasted an inflation of 1 Million percent in Venezuela, by the end of 2018.
To understand what happened in 2018, we could take a look at the inflation in Venezuela just a year prior. In 2017, the situation was so bad that people in Venezuela had to resort to gaming to earn some dollars. They played games like RuneScape and became gold farmers (a process in which you acquire a lot of in-game currency and sell it to others in exchange for real currency). The worst part is, there were many instances that were reported, where salaried employees made less than these videogamers. Prices would change so often that during the Christmas of 2017, shops stopped using price tags and customers were urged to ask the staff in stores, what the cost of an item was.
2. Zimbabwe (2008- 2009)
The devaluation of Zimbabwean currency ended with the Zimbabwean Dollar (ZWD) being scrapped, in favor of the American Dollar (USD). The decline was so swift, the Zimbabwean Dollar went from an exchange rate of 1,000 ZWD to 1 USD in September 2008, to a whopping 300 Trillion ZWD to 1 USD, in just February 2009. The hyperinflation was so bad that the Zimbabwean government had to promote businesses to use foreign currencies like the US Dollar, Euro (EUR) or the South African Rand (ZAR). The Zimbabwean Government was left with no choice but to condone the death of the Zimbabwean Dollar.
Unfavorable economic developments between 2008 and 2009 led to this. A population of 16 million was left impoverished by the rampant inflation, leading to food shortages and unemployment. Zimbabwean exports greatly suffered. This is extremely sad for a country that boasted of some of the most fertile lands on the continent. Zimbabwe was one of the largest exporters of wheat, tobacco and corn. The country was even called, ‘the breadbasket of Africa’. And while the whole world was reeling from recession, Zimbabwean currency was dealt with a fatal blow.
3. The German Mark/Deutsche Mark (1923)
While we explored the economic catastrophes of recent times, the article would amiss if it did not shed light on the ramifications of World War I (WWI) on Germany. In 1914, before the first world war, a US Dollar was equal to 4 Deutsche Marks. Soon after the war in 1920, the value of a German Mark dropped to 70, in comparison with the formidable US Dollar.
Things were really bad in 1923. The country was completely crippled by the massive reparation payments it had to make to other countries. This is besides having to deal with the expensive costs of World War that it had borne in the first place. The workers were unhappy with their situation and uprisings became a common occurrence in the country. What triggered a downward spiral of the German Mark was a workers strike in the beginning of 1923. This strike played a big part in the depreciation of the domestic currency. Then by November of 1923, 1 US Dollar would be considered equal to 4 Trillion German Marks. This hyperinflation would also, just as in the above examples, be controlled by the introduction of a new currency, the Rentenmark. Rentenmarks helped control the hyperinflation and played its part in stabilizing. To a certain extent, it even helped normalize the German Economy.
The Turkish Lira, The Venezuelan Bolivar and the Iranian Rial have been depreciating consistently in recent times. These depreciations have also had an adverse impact on some of the stronger currencies, like the Russian Rouble. While there is a lot of uncertainty on how the situation will be like in the future, for some economies, hopefully there will be no more additions to the worst devaluations of a currency. This is one list countries do not want to find themselves on.
See also: Lowest Currency in the World
