Why Different Currencies Have Different Price Value

Why different currencies have varied price values is critical to a country's economy, especially when interacting with the global market. Traditional commodities, such as gold and silver, have intrinsic value, whereas currency value is determined by a multitude of factors, including market conditions, investor insights, and movement policies. Let us highlight the components indicated above that are critical to determining the cause of price variations and how they affect a country's economy, trade relations, and financial standing in the global ranking. Each of these elements plays an important part in shaping the currency value landscape and, on a larger scale, the nation's economic health around the world. By the way, monetary policies made by international institutions, including the World Bank, might have a considerable impact. 

Currency valuation history 

Prior to the global adoption of fiat money in 1971, real commodities like gold and silver were valued more highly than money. President Richard Nixon of the United States signed legislation eliminating the US dollar's direct convertibility into gold. This was later replaced by representative money, where currency was tied to a commodity such as gold, a system referred to as the gold standard. For your information around the year 1000 AD, China became the first nation to employ fiat currency. 

Supply, Demand, and Exchange Rates

It became clear that supply and demand—both domestically and internationally—are the primary drivers of currency value. It is obvious that when the demand increases for a currency or currency pairs, then the value rises, and vice versa, when the demand decreases, the value tends to fall. In other word, the values are appreciated, and / the value depreciates. Several factors can affect in this appreciation and/or depreciation, such as:

Governments' money supply can have an impact on currency values. When they try to overprint currency to rebalance the market, the money loses its value, resulting in inflation. Higher interest rates attract investors who are seeking higher returns, cause more demand on that currency and then raise the currency value. The other effect is increasing cash flow as a result of foreign investors buying it and strengthening its value. As mentioned above, a higher rate of inflation could reduce consumers' purchasing power, which would reduce demand and cause depreciation.

In the financial market, there are two key exchange rate systems:

• Fixed rate: The central bank and/or the government sets and maintains the country’s official currency exchange rate to the price of gold.

• Variable rate: The country’s currency value fluctuates in response to foreign exchange market events.  

Therefore, fixed rates offer currency stability, which is essential for developing economies that do not need fluctuations in currency value. This further permits more management latitude in the formulation of economic strategies. In contrast, a variable exchange rate is determined by the foreign exchange market. As mentioned earlier currency’s fluctuation comes from supply and demand of other currencies. This can lead to higher volatility and the ability to manage economic policies. 

What factors drive Currency Value?

Both fixed and variable exchange rates are influenced by various economic and political factors that shape currency value.

Valuable currencies are found in stable nations with robust economies. Let’s consider investors that desire to invest and/or trade on Mishov Markets platform in a stable country, thus as a first step they should have that country’s currency in hand which means create a demand. Conversely, political or economic instability erodes confidence, leading to a decline in currency value.  

Why do Different Currencies exist?

It is frequently questioned why different currencies have different values and even why we don’t use a single currency. Various nations derive advantages from implementing their own monetary policies based on their own economic goals and conditions. Countries support their economies differently as a result of the diversity of their currencies in response to local inflation, interest rates, and trade balances. Some countries like Japan keep their currency weak so that it makes their exports become cheaper and more attractive for foreign consumers. Conversely, stronger currencies make more imported items that are more affordable for consumers, which generate domestic demand for imports.