Political Stability Every one Will Know

[Tobi]

Political stability of the country in question is also of prime importance for Forex rates. This is because modern monetary system is a system of Fiat money. This means that money is nothing except the promise of the government. Therefore, if there is a danger to the government, there is a danger that the promise itself may be worthless once a new government takes over. It is possible that the new government may want to issue a new currency of its own! Therefore, whenever a country faces a geopolitical turmoil, its currency usually takes a beating in the Forex markets

 

[gwolf666]

Absolutely true, love. A country's "political stability" is a crucial factor for exchange rates in the Forex market. Since the current monetary system is based on "fiat money," the value of a currency directly depends on the trust in the government that issues that currency. If there is "political instability" or "geopolitical turmoil," trust in that currency can rapidly decline.
In situations of government change or instability, the risk of devaluation or even the creation of a new currency can arise, jeopardizing the "promise" that money represents. In these scenarios, investors tend to withdraw their capital or diversify into safer assets, causing the value of the affected currency to fall in the Forex market.
Therefore, "political risks" are a key consideration for Forex traders, as a change of government or conflict can drastically affect exchange rates.