Everything is based on supply and demand. If we start with two countries that are equal in every way, their currencies will be worth the same. Let's say Country A passes a law improving economic conditions for both consumers and businesses. This law will attract new businesses followed by new consumers of those goods and services being produced by the new businesses... thus increasing the demand for Country A's currency. The value of Country A's currency relative to Country B will increase causing goods produced in Country A to be more expensive when sold in Country B (or when purchased with Country B's currency). In order to remain competitive, Country A will then borrow money to print more currency in an attempt to lower how much their currency is worth (devaluation). To simplify things many countries decide to tie (or peg) their currency to that of another country. So if Country C tied it's currency to Country A, then Country C will increase or decrease it's currency worth in parallel with that of Country A.

When a country collapses their currency's worth falls to 0 because no one is willing to accept the currency in exchange for goods or services. The country is then forced to allow people to purchase goods and services in foreign currencies. If the country's leaders can re-establish control over the country, then a brand new currency can be formed with the support of the World Bank and fellow nations around the world.