theories of currency attack

Currency attack theories explain why investors might rapidly sell a country's currency, causing its value to drop. Key ideas include fundamental weaknesses like high debt or inflation, making the currency look risky. Speculative attacks happen when investors bet against the currency, expecting it to fall, which can become a self-fulfilling prophecy. Additionally, if a country’s currency is fixed or pegged to another, doubts about its ability to maintain the peg or maintain sufficient reserves can trigger attacks. Overall, these theories highlight how economic fundamentals, investor psychology, and policy assurances interact to influence currency stability.