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macro

Currency Collapse Bet

"Bets against central bank credibility"

Shorting a nation's currency when its peg or valuation is economically unsustainable, challenging the central bank's reserves.

How It Works

  1. 1

    Identify fixed exchange rate inconsistent with fundamentals (inflation, trade deficit)

  2. 2

    Borrow the weak currency billions

  3. 3

    Sell it for strong currency (USD/DEM)

  4. 4

    Central Bank must sell reserves to buy back currency to maintain peg

  5. 5

    When reserves run out, peg breaks, currency crashes

  6. 6

    Repay loan with devalued currency, pocket difference

Key Mechanics

Foreign Exchange Reserves

Interest Rate Defense (hiking rates to punish shorts)

Capital Controls

Impossible Trinity (Trilemma)

Regulatory Context

Sovereign nations can change rules overnight. Capital controls, windfall taxes, or outright bans.