Exchange Rates and Currency CrashesThe Brexit vote sent currencies across the world into a turmoil as the UK, EU and everyone else tried to figure out what the implications of the vote meant to the global economy. In the days following the vote, the value of the British Pound dropped 12 percent, and some economists worried it was only the beginning. While the Brexit might make investors and citizens nervous, the British are actually in a much better state than they could be. They have a strong relationship with some of the most powerful economies and currencies in the world, along with a diverse export/import balance. Not all countries fare as well in the face of economic turmoil. Let’s use historical exchange rates to look back at the four worst economic collapses of the 21st Century (so far).
US Sanctions Tumble the Iranian Rial in 2012Back in 2012, the United States set further sanctions against Iran by forbidding financial institutions from working with the Iranian central bank — the same bank that handles Iran’s oil exports and one of the biggest sources of income and wealth in the country. International banks had two choices: They could continue working with Iran and sever ties with the United States economy, or refuse to bank with Iran. Considering the United States has one of the most influential currencies in the world, very few banks were willing to stand by Iran. The result was catastrophic. Looking back on historical exchange rate graphs, you can see how the Iranian rial experienced a slow decline, but then plummeted 60% in a week as citizens panicked over the unstable economy and looming sanctions. As more people ran to get rid of their rials, the value continued to decline. According to The Atlantic, 1 USD traded for 24,600 IRR on September 24, but by October 2 the dollar could buy 39,000 IRR. Even today, the rial hasn’t recovered.
Argentina’s Economic Collapse of 2001Time magazine broke down the three causes of the Argentinian economic crisis at the turn of the millennium:
- Increased privatisation had already increased unemployment, and rampant borrowing by President Carlos Menem in the ‘90s lead to severe debt.
- Then, Brazil reduced the value of the real, which drove investors to take advantage of their exports instead of trading with Argentina.
- Finally, unemployment and uncertainty lead to a 20% drop in the value of the peso overnight, causing riots in small towns and looting to secure basic human necessities.