How Do Economies Decide on the Value of a Currency?

Money is like a game. If you have more of it, it feels less valuable. Imagine you and your friend each have toys to trade, if one of you has many more toys, the others might not want to trade as much. That's how countries decide on the value of their money: when people buy or sell things from other countries, it affects whether a dollar is worth more or less than another currency.

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Examples

When you trade toys with your friend, the one who has more toys might get less in return. This is like how countries decide on the value of a currency.
If many people want to buy things from another country, they might need to use that country’s money, increasing its value.
A dollar becomes worth more if people all over the world are buying American goods and using it to pay.

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Categories: Economics · currency,economy,value,exchange rates