We all talking about the money all the day, work for it and spend it but do anyone think that from where the value of this currency is maintained, why the Dollars are having more value than someother currency. Just think and give your thoughts.
>> From were Money Comes???
Many people think it comes off a money tree. And the plastic cards everyone in USA seems to have today have made paper money less useful. I assume many other countries such as UK also has simpliar experience with plastic.
The value of a country's currency is generally the value of the total productive work done in the county, divided by the number of units of the currency (e.g. dollars) in circulation.
Productive work is work that produces a product to be sold on the open market.
I suppose that is only part of the equation and doesn't explain the day-to-day fluxuation in the world money market. Like many other things the value of one country's currency is what other countries are willing to pay for it on the various stock exchanges around the world.
A good way to think about the value of a currency is by looking at it as any other good. The value of a good is determined by supply and demand. Just as the value of a bushel of wheat is determined by how much wheat is available, the value of a currency is determined by how much is available on the market (in which the value is represented by either the interest rate or the exchange rate, depending on which model you're looking at).
From the interest rate perspective, it comes down to investment and saving. If businesses sense that the economy is going to slow down, they will demand less loans (they will not want to invest in new capital projects), resulting in the interest rate falling.
From the exchange rate perspective (world market), it comes down to the demand for a nation's goods. I need to convert my currency into the Euro if I want to buy a European good. Therefore I will "buy" European currency, resulting in less Euros on the market and increasing the supply of dollars. Therefore the Euro would gain strength against the dollar.
In the end: it comes down to supply and demand, just like any other good.
Generally, oil is traded in US Dollars. With a globally important resource like oil, it is easier to trade with a large, stable currency. (The US has about 1/4th of the world's GDP, and even though we've had some problems combating inflation/recession these past few quarters, we are still stable when you look at the last 30 some years).
As for the other part of the question, the Chinese currency is the Yuan.
I suppose that is only part of the equation and doesn't explain the day-to-day fluctuation in the world money market. Like many other things the value of one country's currency is what other countries are willing to pay for it on the various stock exchanges around the world.
My equation was long term.
Short term variations are caused by interest variations, government changing the interest rate, hirings and firings, and world markets. But those cause blips, not long-term changes.