The decline can be caused by the central bank as well. Recently, Venezuela did so simply by wiping out some zeros of the bolivar. The central bank increased the fixed exchange rate, making local goods cheaper than foreign goods. However, Venezuela finds itself in an untenable position, with inflation rising to as much as 1 million%! In theory, the increase in domestic demand for domestic products is what people hope to happen when this method is used.
A large fiscal deficit can create currency crises as well, despite the paradox that the United States does not seem to be suffering from this problem. Perhaps because the dollar is the reserve currency in the world. However, there are many small countries around the world that have been affected in such situations. Usually, excessive money printing is the biggest culprit. However, more than once, political turmoil was the cause. If a country seems to be about to fall, the currency can enter the cycle of death.
Good money
The country needs sound funds to avoid a potential currency crisis and is usually managed by smart central bank policies that keep money printing to a minimum. However, there are some notable exceptions - the United States is the first example. Although in theory a fixed exchange rate would seem to prevent a currency crisis, floating rates are often better for currencies, because they allow the market to set the rate. Many central banks around the world tried to defend their currency against speculators, but eventually failed after spending billions.
The collapse of currencies is devastating to any local economy. However, forex traders have the advantage of being able to take advantage of these types of moves, and often faster than they expected. I remember being in a trading session selling on the USD / JPY in 2007 when the first part of the housing crisis started in the United States. With the flow of funds to the relative safety of the Japanese Yen, it increased by hundreds of points before I knew what was happening.
Obviously, it works in both directions. Predators often line up earlier to expect a possible devaluation. For example, the SNB linked the Swiss franc to 1.20 euros for a long time. Speculators bought the pair each time it approached this level, because they knew that the Swiss National Bank supported it. However, one day they suddenly came out of that association, and the next thing we saw was the bottom fall. Many people were eliminated in this process, as the sudden shortage of support in the markets led to a flutter. In fact, when this procedure was taken in January 2015, it took only three years to return to the same general area that we fell from. Currency devaluations and currency crises can be brutal, and very abrupt. However, if you are on the right side of a deal like this, you can make your whole year a winner.
At the end of the day, currency crises may be expected in some cases, while they can cause serious problems
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