5000 Forint (Hungarian National Bank building by Ignác Alpár) – Hungary

In 2005, Hungary's currency situation was defined by the Forint's (HUF) participation in the European Union's Exchange Rate Mechanism II (ERM II), which it had entered in 2004 following EU accession. The primary goal was to eventually adopt the euro, requiring the forint to maintain stability against the euro within a fluctuation band of ±15%. However, this period was marked by significant upward pressure on the currency, driven by strong capital inflows from foreign investors attracted by high yields and the convergence story. The National Bank of Hungary (MNB) often intervened to prevent excessive appreciation, which hurt export competitiveness, creating a delicate balancing act between growth, inflation, and euro convergence targets.

Underlying this tension was a severe fiscal policy challenge, famously dubbed the "double deficit" problem. Hungary ran both a substantial budget deficit (exceeding 6% of GDP) and a large current account deficit (around 6-7% of GDP). This twin deficit made the economy vulnerable to shifts in investor sentiment, as it relied heavily on foreign financing. Consequently, the forint became highly sensitive to global risk appetite and political news, leading to periods of volatility despite the central bank's efforts. The high interest rates needed to attract capital and curb inflation further fueled the forint's strength, complicating the economic adjustment.

By the end of 2005, the currency situation had become unsustainable, setting the stage for a major shift. The market's tolerance for the twin deficits waned, and in 2006, following the revelation that the fiscal situation was even worse than previously disclosed, Hungary faced a full-blown currency and confidence crisis. The forint came under severe selling pressure, forcing the MNB to abandon its loose exchange rate band and sharply raise interest rates. Thus, the vulnerabilities accumulated and managed—but not resolved—through 2005 culminated in a stark economic and political reckoning the following year, delaying euro adoption plans indefinitely.