How do they determine the wealth of money?
How do they determine that a U.S. Dollar is worth more than money in some other country like China? What is it that makes some money worth more than others. The US dollar is just a special kind of paper. Is it the long process in making the dollar or materials used on it that makes it worth more? If another country did the same would its money become worth the same as the U.S.? -interesting question
Economics - 2 Answers
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1 :
It's determined by auction in the currency markets every day. Just like you determine what a share of IBM stock is worth and what a share of Microsoft stocks is worth.
2 :
The value of money in fiat currencies, which most modern nations use, is in the soundness of all the systems in that country that affect the ability of the country to enforce it's requirement that transactions in that country be done using that currency. So a person outside the country must continuously assess the likelihood that the money they hold will be honored by the country that issued it. As a country grows richer, and more stable and it's systems of enforcement of markets and law and fiscal policy and monetary policy improve, the value of its currency improves.
