If somebody were to hand you a dollar bill and ask how much is it worth,
your first inclination may be to answer that it's worth one dollar -
face value. This may ring true for a normal consumer, but in the grander
scheme of things the US dollar will fluctuate in worth depending on the
health of the economy.
If you have only a perfunctory interest
in global finance, you may hear phrases like "the strength of the US
dollar" or the Japanese Yen or British Sterling as compared to other
currencies. One example of a strong showing for US money is it's value
in Canadian dollars. Because the US dollar was worth $1.04 CDN as late
in 2009, it grew in value from the prior year, when one could only get
ninety-eight cents Canadian per US dollar.
When the US dollar is
strong, the currency exchange will favor it when you wish to trade for
Euros, Yuan, or other monies. There are many factors that can affect the
value of a single currency, too. Let's use the US dollar again an
example to break down the specifics.
1) Global Trade Environment -
Ideally, a country will want to export more than it imports to keep up
the strength of their home currency. When the reverse happens, the
country's trade partners must help to balance the exchange and keep the
dollar strong by buying up domestic assets.
2) Political and Social Factors
- Our monetary strength is also affected by actions in our government. A
President's approval rating, for one, influences how much foreign
countries invest financially in the US, and tax cuts made within reason
(that is, ones that don't widen our current national debt) also work to
increase household spending.
3) Activity in Other Countries -
Events in Europe and Asia, unrelated to the United States, may also
affect our monetary value. Military conflicts, oil activity, and
strengthened economics can accordingly decrease or boost the dollar
overseas.
4) Consumer Behavior - The more our citizens
spend on items made in China, Taiwan, and elsewhere, the more those
economies benefit as a whole for global economy, to which the domestic
economy is linked. Oil prices also effect how we spend. Rising gas costs
may equal less travel and consequently less spent in country.
5) Industry Factors -
To counter the inevitable global competition, the domestic industries
will have no choice to embrace the need for the change, to break out of
the so-called red sea (fierce competition due to similarity and lack of
peculiarity), and to create their own blue ocean by innovation, which is
part of the human evolution.
As you study global economy, you
will find many more factors affect the global worth of money. To achieve
a strong dollar here, it's important to work toward strengthening
domestic economy. This also increases global dependence on our economy,
and hopefully good relations in trade.