How Foreign Currency Values Are Affected By War and Disaster

As the most involved market, the Forex is constantly changing. In fact, with the entire world involved, the slightest negative impact or event can easily disrupt and make the market and value of a currency spiral down.

To give you an idea, there are a few circumstances that are able to cause a foreign currency to drop in value.

Political Happenings

With almost every country in the world holding elections, there are going to be impacts on the currency. When an election occurs, it can be viewed negatively as a time of political uncertainty or unpredictability such as in Iraq. Over time, we might see a revalue, such as an Iraqi dinar revalue. This could ultimately lead to increased unpredictability in the currency’s value. Normally, the polls of an election are monitored prior to election day to see if any variation occurs. This is due to the fact that when a change occurs in the leadership, then the country’s beliefs also change. This can have a tremendous effect on the monetary system which plays a big role in value.

Additionally, a whole other election occurring out of nowhere should also be monitored. This could occur due to corruption or votes that are of non-confidence nature. These situations can also negatively impact the value of a currency.

Upheaval within a society that leads to riots is capable of creating unknowns and unstableness. Even for countries that are attempting a democratic approach, analysts of foreign exchange still feel doubt. Having an unstable political system always becomes worse no matter how long it lasts, and as a result the currency will always suffer in the end.

Nevertheless, the currency will eventually settle down after the currency’s valuation is conducted. This is equal to what the country’s long-term growth will look like.

Currency Changes Due To Natural Disasters

If natural disasters plague a country, then they can cause the country’s financial system to feel the pain as well. This can easily lead to financial ruin to a country as it tries to bounce back from floods, hurricanes, earthquakes, or tornadoes. Besides the event itself, the destruction and death of citizens can adversely affect the currency of a country. Damage caused to the infrastructure is also a major issue to consider. This is because infrastructure is the foundation on which an economy is able to thrive and if it fails or crumbles, then it is unable to provide the necessary output for an area.

Additionally, the cleanup after a disaster takes away the funds that are needed for all spending that would have benefited the country economically, instead of repairing the currency’s value.

Plus, when you add in an uncertain spending habit from consumers because of the existing doubt and decreased amount of confidence from consumers, the strengths in the economy may be considered a weakness. With all of this, having disasters happen will highly affect the currency value of any nation.

Negative Impact on Currency Due to Wars

This is not talking about currency wars where they are based on global trade, but a war that involves physical death and destruction where an economy can become devastated tremendously. Compared to a natural disaster, a war’s impact can also be vicious and drawn-out. The destruction to a country’s infrastructure is equivalent to a natural disaster and can cause damage to a nation’s ability to remain viable. In the end, the government and citizens could lose billions cause by the conflict.

It is a fact that rebuilding efforts following wars are often paid for through the cheapest capital as possible which has the least amount of interest. This can cause a currency’s value to become less. A huge amount of doubt also exists concerning the expectations of the economic future of countries with the most effect. This causes a higher amount of rapid change within the currency in contrast to countries not involved in any wars.

When it boils down to it, conflicts, disasters, and uncertainty are just a few of the possibilities that can cause a currency to plummet in value. A nation’s currency value is based on the overall strength of an economy, which means that any negative happenings occurring economically will likely not be favorable for a currency.