When governments are experiencing huge deficits and inflation, investments in currency will fall. Higher interest rates cause currency values to increase. It is harder to compete in nations whose currency values are too high, because this makes manufacturing costs increase. Developing nations are being punished by imposing harsh restrictions on how these nations may spend money, which can force countries to cut back on education and health programs. When devaluation of currency occurs, governments and central banks are forced by the markets to make huge and sudden adjustments, at great cost.
Governments find themselves being controlled by the financial market.
Major governments have surrendered claims on capital, by retracting their controls on inflowing and outflowing capital, as national markets are opened to foreign firms and foreign money. It is the market itself that has caused governments to be mediators between bad investments and financial stability. Governments are forced to intervene when nations experience devastating losses from bad investments. Efforts have been made to manage the flow of currency, but ultimately policies are driven by what is happening in each individual nation. Governments find themselves competing with their own economies when currency becomes in such high demand.