Currency identifies itself as a medium of exchange for the general public’s needs in money form. It is a system of money that depends on the nation and country. It can also be defined as a rotary system influenced by commerce, purchase, and permutation in the economic state. Some existing factors have an impressive sequel to the currency exchange rate, such as inflation, interest rates, public debt, political stability, financial health, the balance of trade, current account deficit, speculation, and government intervention. Those factors impact the exchange rates globally and at a macro level.
By: Syeda Syema Naba
The first global currency was the Spanish dollar, which stretched its empowerment from Spanish territories in the Americas westwards to Asia and eastwards to Europe. Before the dollar, the British pound was the most dominant currency throughout the world till World War 2. The British pound is equivalent to 1.2 US dollars. British products demand a high purchasing rate for their products, so the inflation rate is comparatively lower than in other states. Therefore, the pound exchange rate is solid and continuous. Expert investors continue to invest, leading the pound’s exchange rate to be pushed out of whack, and correct speculation makes the pound even more stable than it was before.
Britain takes pride in having had a limited deficit since 2012 at about 30.1 billion. Later in World War 2, an agreement was fabricated by 44 allied countries entitled the Bretton Woods Agreement to ascertain the exchange rate for foreign currencies. During that period, the US supplied a significant amount of gold and made the dollar stable with the establishment of the US dollar as the official reserve currency. The US government influenced other countries to metamorphose their dollars into gold. But it is estimated that there is a high possibility of replacing the dollar with the euro. The euro is the official currency for the states of European countries. It is the second-largest currency after the US dollar.
Currently, 1 Pound is equivalent to 1.26 United States dollars, and 1 Euro is equal to 1.05 United States dollars. Five U.S. regions and 11 foreign countries exercise their commute by us dollar. Besides, an exciting fact arises that some British territories, The British Virgin Islands and the Turks and Caicos, access the usage of dollar reasoning the allied relationship with the united states. Now the Kuwaiti king dinar is the strongest currency globally. 1 Kuwaiti dinar equaling 3.2 United States Dollars. So why are these currencies not equal in number to other countries, and what are the reasons behind devaluing the currency?
Devaluing money is a debt-relief approach that is both counterproductive and self-defeating. Those countries use this way to boost their exports in the global market. The export rate will increase compared to the import rate and shrink trade deficits. For example, if two currencies decrease their values against them, the prices of any product manufactured by those two states will be comparatively more extravagant. This depreciation of the currency has a significant influence on the export sector in the international market. Several countries, including China, have been accused of using this strategy on the global trade market. According to assessments, the government has been depreciating its currency in order to collaborate with the United States. This strategy assists in making exports cheaper and more competitive with foreign commuters. It positively affects the export sector. A high rate of exports may contribute to economic prosperity and social privileges. The central banks can also lower the rate of interest. But imports may be uplifted at an expensive rate, and The Aggregate Demand (AD ) remains increased. It drops the purchasing power, reduces real wages, and scares investors. So this method can affect the economy in both ways, but it is an international policy that has existed for years practised by the government.