Many a people have been asking me why the dollar suddenly has risen so high against the Naira and the factors responsible for it..in trying to explain to them in theoretical economic jargons, I got them more confused.
Thus, I had to simplify my explanation in this post to aid any one of you that had asked me a question relating to the fall in Naira to dollar.
This year, Nigeria has witnessed the worst level of currency collapse than the previous. We have all seen a sharp fall in the value of our currency, and it's effect in the economy.
Many would wonder what causes this, and may have no inkling about the causative factors...thus, I have taken my time to highlight some of the factors that causes a currency collapse.

Causes of Currency Collapse

1. Inflation: ( a general increase in prices and fall in the purchasing value of money)

Inflation reduces the value of money. If there is rampant inflation, then a currency will depreciate in value.
What causes inflation?

-Printing Money: Note, printing money doesn't always cause inflation. It will occur when the money supply is increased faster than the growth of real output.
Note: the link between printing money and causing inflation is not straight forward.
The money supply doesn't just depend on the amount the government prints. The US has been increasing their monetary base substantially, but, as of yet, it hasn't led to inflation because of other factors influencing/balancing the line to counter inflation.

-Large National Debt. To finance large national debts, governments often print money and this can cause inflation. But, national debt doesn't have to cause inflation in all cases.

2. Current Account Deficit:

A current account deficit means that a country imports more goods and services than it exports. To finance this deficit, they will require a surplus on the financial/Capital account.
However, the problem comes when you can no longer finance this deficit - when you can no longer attract capital flows, foreign investors would start withdrawing their investment and money the economy of such a country, like what is happening now in our country.
The capital flows would start drying up, which then will cause a depreciation in the exchange rate. Basically there is more money leaving Nigeria than there's coming in. This is reflected by the fall in the exchange rate.

3. Collapse of Confidence

If there is a collapse of confidence in an economy or financial sector, this will lead to an outflow of currency as people don't want to risk losing their currency. Therefore, this causes an outflow of capital and a depreciation in the exchange rate. Collapse in confidence can be due to "political'' or economic factors.

4. Lower Growth and lower interest rates.

Lower rates make it less attractive to save in a country and therefore, there will be a modest depreciation. Lower rates don't usually cause a collapse in a currency, but, they will make the currency less attractive.

5. Price of Commodities

If an economy depends on exports of raw materials, a fall in the price of this raw material can cause a a fall in export revenue and a depreciation in the exchange rate. E.g. Is seen in the fall of the price of crude oil in the world, which in turn is affecting our dear country Nigeria.