It's difficult to get into without explaining how the foreign exchange works.What, exactly, is the dollar slipping from anyway?
World currencies are traded on a global market. Governments can either "peg" their currency or "float" their currency. Floating is significantly simpler, but more risky if your economy is shaky.
When you float your currency you essentially go about your own business as the private free market determines your currency's worth compared to all other currencies in the world (eg. I'll give you 1.05 dollars for every Swiss Franc you give me) as private entities decide to move in or pull out of certain countries. It's important to point out that this is the ideal system as it provides an amount of liquidity even central banks can't endanger on their own as well as operating 24 hours, 5.5 days a week around the world (When markets in London shut down, New York is up. When New York goes down, Tokyo goes up).
When you peg your currency you essentially work within the standard foreign exchange system, but work at manipulating the value of your currency. When an economy gets very big, this is a pain in the ass to other countries because, since everything is done on the foreign exchange in terms of two currencies, you're directly affecting a foreign nation's currency as well.
So, for example, China could keep their renminbi artificially low by printing more and selling them on the foreign exchange. They would then sell them in relation to either the US Dollar or a basket of currencies. When they do that, they drive up the value of the US dollar.
It's important to know that "up" and "down" are not positive or negative terms on the foreign exchange. If you're a nation that's a net exporter (such as Japan or Germany) you want a weak currency. Before the Euro the German Mark was around 2.5 Marks per US Dollar. The Japanese Yen is 81.8 Yen per US Dollar. They are (or were, in the case of the Mark) two of the world's most important currencies despite being "weak". A "weak" currency increases your economy's selling power
In comparison, if you're a net importer (Like the US) you want a strong currency so you can continue to buy stuff from abroad. A decline in the value of your currency decreases your country's buying power.
A "weak" currency CAN be good for the United States as it means our exports can begin ramping up which would address a myriad of problems in our system.
Last edited by Laize; 2012-11-16 at 06:34 PM.
I dont understand money why they all worked up about it crashing etc? its just paper or digits surely they can just make more?
or get rid or money alltogether and use some diffrent system
I have no idea on this subject at all.. I just wondered what life would be like with out money
Making more paper or digits reduces the value of the original currency. Think of it in terms of supply and demand. If you had a Ferrari you'd probably be pretty pumped and it would be the most valuable thing you owned.
If you had 10 Ferraris, each individual Ferrari becomes less valuable on its own. Same thing happens with money.
"Some different system" is pretty difficult since there's no other equally fungible way to quantify an amount of labor in a transferable form.