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by Thom64 on October 14th, 2004
The other main cause is market confidence. If nobody believes that a dollar or euro will be worth much next month or next year, you will have to pay a lot more of them for the same goods or services. For example, if general concensus was that China was about to invade Japan (hypothetically), the value of the Yen might drop precipitously. If the government of India (hypothetically) looked unstable and near collapse, the currency issued by that government would quickly lose value.
The more uncertain the future of the currency, the lower its value. If the value does drop dramatically, the government is forced to issue more currency to keep its economy alive. This can be (and has been for some countries) a vicious feed-back loop that can cause an economy to spiral down to collapse. Confidence drops, currency value drops, more currency is issued which lowers confidence which causes more value loss...
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