Historically, when a nation’s debt exceeds its ability to repay even the interest, it can be assumed that the currency will collapse. Typically, governments exacerbate the situation by printing large amounts of currency notes in an effort to inflate the problem away, or at least postpone it.
The greater the level of debt, the more dramatic the inflation must be to counter it. The more dramatic the inflation, the greater the danger that hyperinflation will take place. No government has ever been able to control hyperinflation. If it occurs, it does so quickly andalways ends with a crash.
Although there are observers (myself included) who frequently discuss what a reserve-currency crash would mean to the world, there is little or no discussion as to how this would impact people on the street level, and perhaps that discussion should begin.
When currencies crash, the state often tries to float a new currency. Sometimes, it’s accepted, sometimes not. Generally, the people of the country (and those trading within the country) move immediately to “the next best thing.” In 2009, when the Zimbabwe dollar crashed, several currencies were used, but the US dollar was the clear favourite, as it was the world’s reserve currency and therefore the most “spendable” currency.
Not surprisingly, the Zimbabwean government fought the use of the dollar, as they wanted to retain control of the economy and the people. People were therefore penalised for using the US dollar and other currencies.
And that’s what most governments do, but here’s where that idea usually falls down: First, the “black-market” currency is so desired by the now-jaded citizens that they do all they can to avoid the new official currency. Soon, most transactions, although illegal, are undertaken in the black-market currency. Second, since no one really wants the new currency, even the political leaders are soon using the black-market currency.
Ultimately, the black-market currency is legalised (since it’s the only truly workable solution), and it often becomes the unofficial currency, if not actually the official one.