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To prop up the value of the nation's currency, the central bank may resort to creating artificial demand for its currency. It can do this by using some of its foreign exchange reserves to buy local currency.

Central banks, especially those in developing countries, intervene in the foreign exchange market in order to build reserves for themselves or provide them to the country's banks. Their aim is often to stabilize the exchange rate.

Central banks hold reserves of foreign currencies and bonds to help protect against sudden or painful declines in the value of their own currency. Typically, these reserves are held in major international currencies like the U.S. dollar, the British pound and the euro.

In a fixed exchange rate system, a country's central bank typically uses an open market mechanism and is committed at all times to buy and sell its currency at a fixed price in order to maintain its pegged ratio and, hence, the stable value of its currency in relation to the reference to which it is pegged.

There are a handful of methods that can solve a currency crisis, including implementing floating exchange rates, moving away from pegged rates, monetary policy that allows for trading with the market, government policies to attract foreign investment, and the country purchasing its own currency.

Some of the major stages through which money has evolved are as follows: (i) Commodity Money (ii) Metallic Money (iii) Paper Money (iv) Credit Money (v) Plastic Money.

What Makes a Currency Stable? A currency is considered stable when it maintains its unit of account and purchasing power over a long period of time. These currencies have smaller fluctuations in their exchange rates than most currencies.