A currency collapse is a slower, less dramatic cousin of hyperinflation. The currency does not become worthless overnight. It loses value gradually — 20%, 30%, 50% against major currencies over months or years. But the effect is the same: savings are eroded, imports become unaffordable, and the central bank loses credibility.
Currency collapses often follow a familiar script. A country runs persistent trade deficits, importing more than it exports. It finances the deficit by borrowing in foreign currency. When foreign lenders lose confidence, capital flows reverse. The currency depreciates. The central bank raises interest rates to defend the currency, which crushes the domestic economy. Eventually, the defence fails. The currency collapses.
The Asian Financial Crisis of 1997 followed this pattern. Thailand, Indonesia, South Korea — countries that had been celebrated as "tigers" — saw their currencies lose half their value in months. The IMF imposed austerity as a condition of bailout loans. The dissolution was not of the currency alone but of the economic model that had produced the growth.
Argentina's 2001 collapse was different. The peso was pegged to the US dollar at a one-to-one rate. When the peg broke, the peso lost two-thirds of its value. Bank accounts denominated in dollars were forcibly converted to pesos at an unfavourable rate. The dissolution of the currency was accompanied by the dissolution of the banking system, the government, and — briefly — civil order.