Currency is a very important part of an economy as it provides individuals access to means and increases their purchasing power.
The entire financial system uses currency as a medium of exchange between two people for various goods and services.
Every country has a set value for their currency which fluctuates due to the monetary and fiscal policy of the country. Low-value currency may be good for exports and earning foreign exchange but may cause the purchasing power of the individual to go down.
It is a tightrope that needs a lot of balancing and it involves a lot of factors. In this article, we will discuss what currency has the least value, the list of weakest currencies in the world, countries with high inflation, and much more.
List of weakest Currency in the World
The following is the list of the weakest currencies in the world-
|1 INR Value (As of November 2023)
|Sierra Leonean Leone
Reason for Weak Currency
The following are the reasons which contribute to a reduction of the value of the currency-
Over Printing money is the biggest cause that contributes to the rapid devaluation of the currency. The monetary policy of the country determines the printing and value estimation of the currency.
Money cannot be printed out of thin air, it requires substantial backing either via debt or an asset like gold. The printed money is injected into the economy by favorable interest rates for loans, Government expenditures, various projects, etc.
But when the over-printing is done, it severely devalues the currency and investors start pulling out the money from the market and storing it in a strong-value currency like dollars which in turn further devalues the currency.
The prime example of how over-printing destroys the economy of the country is Zimbabwe, here the government over-printed the currency during the 2000s, which led to economic disaster.
Due to this Hyperinflation occurred in Zimbabwe and Zimbabwe joined the list of countries using US Dollars instead of their currency.
Similarly, Venezuela also over-printed and lost economic growth, and Argentina also over-printed and has seen a downward spiral ever since.
Increased Oil Price
Energy is the most important factor that any economy needs to fulfill its economic requirements. The Industrial Revolution of the 19th and 20th century was fueled by the extraction of the oil.
When oil prices go up, the global economy goes under strain, and countries especially which are heavily dependent on import of the oil like India, China, etc. have to face the economic strain.
The economic strain further increases the demand of dollars for purchasing oil from the market which in turn devalues the currency of other countries.
Sanctions are the mechanism developed by the United States to punish all those countries that do not enjoy good relations with the West.
All the financial systems in the world are connected to the International Monetary Fund and World Bank, United Nations, Swift, etc.
All these are international organization however, the control over these organization is with the United States and most of the organization is located in the US.
This control also provides the United States power to put sanctions on the country that it dislikes over various issues like Human Rights issues, geopolitical issues, etc.
A unilateral sanction was put by the collective West on Russia North Korea, and Iran due to their geopolitical standing of anti-west.
Any country going through sanctions will be cut off from this financial institution and the trade between the countries will have to be done using other currencies like Yuan, Rupee, or Rubel instead of Dollars.
Dollars are used for trading between two countries and when the sanction is put in, the dollar trade becomes impossible making it tough for the countries to trade hence, reducing the demand for the local currency and therefore, reducing the value of the currency.
Inflation is yet another factor that contributes to the lower economic output as well as the low value of the currency.
Inflation hits an economy when the oil prices are high, over-printing, or restriction of Essential goods like food and other supplies.
When inflation hits, the prices of commodities and other essential goods and services go up including the Repo rate.
Repo Rate is the rate at which the central bank lends money to the commercial banks which then pass on to the general public for lending.
In this setup, if the Repo Rate goes up, the lending for the public becomes costly so low customers will turn up for loans which cuts off the access to capital for people.
This reduction of the capital from the market causes economic growth to stump and it leads to lower economic activities which further results in a reduction of the currency value.
Countries with Highest Inflation
High inflation often devalues the currency and makes it tough for the citizens to afford things. The following are the countries with the Highest inflation rate which may reduce the currency value of that country as well-
|CPI Inflation (%)
The highest currency in the world is Kuwaiti Dinar whose current rate is 1 Kuwaiti Dinar = 269.65 Indian Rupee.
The lowest currency in the world is the Iranian Rial whose current rate is 1 Indian Rupee= 507.00 Iranian Rial.
The second most expensive currency in the world is the Bahraini Dinar whose current Rate is 1 Bahraini Dinar = 220.87 Indian Rupee.